I Still Think My Disclosure Advice to Clients is the Same After Macquarie

I appreciate Ann's super helpful post on omissions liability after the U.S. Supreme Court's decision in Macquarie Infrastructure Corp. et al. v. Moab Partners, L. P., et al.  The hair splitting in that opinion is, in my view, dubious at best.  The Court's creation of a legally significant concept of "pure omissions" in a public company disclosure context is doctrinally counterfactual.  The omission to state a fact required to be disclosed under a mandatory disclosure rule like Item 303 of Regulation S-K necessarily occurs in a veritable river of disclosures in SEC filings and more generally and has the potential of making those disclosures misleading.  If material, such an omission should be actionable as deceptive or manipulative conduct under Section 10(b) of and Rule 10b-5 under the Securities Exchange Act of 1934, as amended.  Period.

Of course. civil liability would require proof of all elements of the claim, including (even for public enforcement officials) the requisite state of mind or scienter.  Private class action plaintiffs also would have heightened pleading burdens.  And a criminal prosecution can only be sustained if the predicate conduct is willful, as provided in Section 32(a) of the Exchange Act.

The point is that there is no such thing as a "pure omission."  Investors logically rely on the interplay between and among public statements made in filings and elsewhere.  If X exists for Public Company A, and Public Company A is required to disclose X in a public filing but does not do so, investors will view and assess all of the relevant public information about Public Company A assuming X does not exist for Public Company A.  If the omission makes existing disclosures misleading, is material, is made withe the action-appropriate state of mind, and deceives or manipulates, the basis for a Rule 10b-5 cause of action against Public Company A plainly exists based on the language of Section 10(b) and Rule 10b-5.  Back in January, wben I first wrote about Macquarie and an amicus brief I coauthored for the case (which you can fined here), I stated as much.  It seems Ann agrees when she says that "whatever the language of 10b-5(b), it seems entirely unobjectionable that it should be considered a “manipulative or deceptive device or contrivance” within the broader meaning of Section 10(b) to intentionally withhold information you have a duty to disclose – from some other source – in order to mislead someone else."  (Her further analysis follows.)

As Ann's post notes, much remains to be seen and said about the impact of Macquarie, and the Court has signaled that the true wisdom we can gain from its opinion in Macquarie may be constrained to actions brought under Rule 10b-5(b) and to certain factual contexts.  As a result, I have determined it is still appropriate--and wise--to caution public company clients that their failure to comply with mandatory disclosure requirements may make them subject to, among other things, Section 10(b)/Rule 10b-5 litigation.  One should, of course, note (among other things) that the omission would have to be material, make other disclosed facts misleading, and be made recklessly or willfully in order for liability to attach. 

Do you disagree?  Do you believe there are "pure omissions" in a public company disclosure context? Let me know.