In recent years, several courts have held that a company’s failure to disclose “any known trends or uncertainties” that are likely to have a material impact on a company’s financial results, as required by Item 303 of SEC Regulation S-K, can give rise to liability in connection with an offering of securities pursuant to the Securities Act of 1933.
Perhaps not surprisingly, courts are now seeing an increase in cases under another commonly invoked federal securities statute—Section 10(b) of the Securities Exchange Act of 1934—alleging that a failure to make a disclosure under Item 303 constitutes a violation of that statute as well. In 2014, the U.S. Court of Appeals for the Ninth Circuit held that Item 303′s disclosure duty is not “actionable under Section 10(b)….”1 However, earlier this year, in Stratte-McClure v. Morgan Stanley, the U.S. Court of Appeals for the Second Circuit held that a disclosure violation under Item 303 could potentially give rise to Section 10(b) liability, if the elements of a Section 10(b) claim are otherwise met.
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