This month, we discuss Stratte-McClure v. Morgan Stanley,1 in which the U.S. Court of Appeals for the Second Circuit affirmed an order granting defendants’ motion to dismiss. In its decision, written by Judge Debra Ann Livingston and joined by Judge Jose A. Cabranes and Judge Richard C. Wesley, the court concluded as a matter of first impression for this circuit that Item 303 of Regulation S-K imposes a duty of disclosure on a company filing a Form 10-Q which, under certain circumstances, may give rise to liability under Section 10(b) and Rule 10b-5. This decision creates a split with the U.S. Court of Appeals for the Ninth Circuit.
Background
Lead plaintiffs State-Boston Retirement System and Fjarde AP-Fonden brought a putative securities fraud class action under Sections 10(b) and 20(a), 15 U.S.C. §§78j(b) & 78t(a), of the Securities Exchange Act of 1934 for losses that they said they sustained when Morgan Stanley and six of its officers and former officers allegedly made material misstatements and omissions during the class period. Plaintiffs alleged that defendants made these misstatements and omissions to try to conceal Morgan Stanley’s exposure to and losses from the subprime mortgage market.
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