September 4, 2010
The Reasonably Available Data Rule
The Wall Street Journal ran an article this week about the SEC's on-going case against Angelo Mozilo, former CEO of Countrywide. The Journal noted that one of the key issues was whether disclosures by Countrywide subsidiaries (with names such as CWALT LLC) sufficiently put the market on notice as to Countrywide's financial status so as to cure Countrywide's failure to disclose the same information. The SEC is quoted as saying that in order for such information to be deemed part of the relevant total mix, it must be "readily" or "reasonably" available to shareholders.
Dear SEC, just in case you're looking for any additional citations to support your position, might I suggest: Who Should Do the Math? Materiality Issues in Disclosures that Require Investors to Calculate the Bottom Line, 34 Pepp. L. Rev. 927 (2007). In that paper, I argue that (in the context of disclosures that fail to calculate the bottom line impact of various financial results for shareholders):
[C]ourts should apply what I call, for purposes of this paper, the “Reasonably Available Data” rule. The Reasonably Available Data rule builds upon existing materiality doctrines to analyze each particular omission on its own facts. Specifically, I argue that when courts are presented with the question of whether failure to explicitly disclose the bottom line constitutes a material omission, they should ask: (1) whether all the relevant pieces of data necessary to calculate the bottom line were disclosed proximately to one another and in the place where a reasonable investor would expect to find them; (2) whether the data was cross-referenced to; and (3) whether the import of the data was sufficiently highlighted to alert the reasonable investor. In addition, where the bottom line was omitted in a corrective disclosure, that fact should count against defendants. Finally, a presumption of materiality should be applied where the bottom line is subsequently made public and the market reacts negatively to that disclosure.
As always: Why blog, if not to shamelessly promote your own scholarship?