Supreme Court to Hear Important Securities Fraud Case - Tomorrow!

Tomorrow morning, the U.S. Supreme Court will be hearing oral arguments on a securities fraud case for which I am an amicus brief coauthor.  The case is: Macquarie Infrastructure Corporation, et al. v. Moab Partners, L.P., et al. (No. 22–1165, Certiorari to the C. A. 2nd Circuit).  The Court convenes at 10 am and has allotted one hour for oral argument: 30 minutes for the petitioners, 20 minutes for the respondent, Moab Partners, and 10 minutes for the U.S. Securities and Exchange Commission (“SEC”), as amicus supporting the respondents.  An audio feed of the argument is live-streamed on the Court's website, and the Court posts the audio later in the day.

The question presented to the Court is: "May a failure to make a disclosure required under Item 303 of SEC Regulation S-K support a private claim under Section 10(b) of the Securities Exchange Act of 1934, even in the absence of an otherwise misleading statement?"  The issue in the case, in essence, is whether a mandatory disclosure rule properly adopted by the SEC gives rise to a duty to disclose that can be the basis of a securities fraud claim under Section 10(b) of and Rule 10b-5 under the Securities Exchange Act of 1934, as amended.  There is a circuit split on this issue.  As most of you know, in 1988, in Basic v. Levinson, the Supreme Court offered that “[s]ilence, absent a duty to disclose, is not misleading under Rule 10b-5.”  A duty to disclose is therefore a foundational element in a Section 10(b)/Rule 10b-5 claim.  Of course, the elements of proof extend beyond this essential disclosure duty element—including by incorporating the requirement that there be a misstatement or misleading omission of a material fact).

The Macquarie case involves a corporation’s alleged failure to comply with an SEC mandatory disclosure rule.  The corporation and other original defendants are the petitioners.  Our brief argues in favor of the respondents.  In sum, we argue that the SEC disclosure requirement creates a judicially cognizable duty to disclose for purposes of a claim under Section 10(b)/Rule 10b-5.  Accordingly, we contend that the omission of the required disclosure provides a basis for a Section 10(b)/Rule 10b-5 claim.  An omission to state material fact required to be disclosed under an SEC mandatory disclosure rule may mislead investors who expect that any required disclosure is made or inapplicable.

Many of us teach in this space.  If you have time to listen in, the argument may illuminate some new things.  And it is bound to be interesting, regardless.