On April 12, 2024, the U.S. Supreme Court took a significant step to curb securities fraud suits based on alleged omissions in SEC filings. The Supreme Court held in Macquarie Infrastructure Corporation v. Moab Partners, L.P. that “pure omissions,” including a failure to disclose information required by Item 303 of SEC Regulation S-K (“Item 303”), cannot support a claim under Section 10(b) of the Securities Exchange Act of 1934 (“Section 10(b)”) and Rule 10b-5(b) promulgated thereunder unless the omission renders affirmative statements misleading.¹ In so holding, the Court narrowed the scope of potential liability for issuers under the antifraud provisions of the federal securities laws and weakened the ability of putative class plaintiffs to leverage a disclosure violation into a costly securities fraud suit.

Under Item 303, issuers are required to furnish information regarding “any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.”² The Macquarie decision resolves a circuit split between the Second Circuit Court of Appeals, which permitted Section 10(b) claims premised on pure omissions in Item 303 disclosures, and the Third and Ninth Circuit Courts of Appeals, which did not.³ Securities fraud suits filed in district courts in the Second Circuit routinely included omission claims premised on Item 303 disclosures.

In Macquarie, shareholder plaintiffs followed this trend and brought suit under Section 10(b) and Rule 10b-5(b) against Macquarie Infrastructure Corporation alleging that the company’s failure to disclose a change in international regulations amounted to securities fraud because the company was required to disclose “known trends and uncertainties” under Item 303. The district court disagreed and dismissed the complaint for failure to state a claim. On appeal, the Second Circuit reversed and held that the company had a duty to disclose the change in international regulations under Item 303 and that non-compliance with Item 303 alone could support a claim for securities fraud.

In a unanimous decision written by Justice Sonia Sotomayor, the Supreme Court vacated the Second Circuit’s ruling. The Court concluded that “pure omissions” are not actionable under Section 10(b) or Rule 10b-5(b) and that a violation of Item 303, without an otherwise misleading statement, cannot support a claim under Section 10(b) and Rule 10b-5(b). The Court’s decision turned on its interpretation of Rule 10b-5(b), which prohibits “omitting a material fact necessary ‘to make the statements made … not misleading.’”⁴ The Court reasoned that Rule 10b-5(b) prohibits half-truths, rather than pure omissions, because it references “statements made.” The Court contrasted this language with Section 11 of the Securities Act of 1933, which expressly targets pure omissions by imposing strict liability for registration statements that “omit to state a material fact required to be stated therein.”⁵

The Court rejected the contention that excluding pure omissions from the ambit of Section 10(b) and Rule 10b-5(b) would result in “broad immunity” for issuers that fraudulently omit information required to be disclosed.⁶ It noted that private litigants may still bring claims based on Item 303 violations where they allege that the failure to disclose under Item 303 rendered a statement misleading and that the SEC has authority to investigate violations of Item 303.

The Court’s important decision provides issuers with a powerful argument to defend against securities fraud claims premised on Item 303 disclosures and clarifies the scope of omission liability under Section 10(b).