Can a company be sued for securities fraud for omitting from its public filings information required to be disclosed by an SEC regulation? That is the question the U.S. Supreme Court recently agreed to address in Leidos v. Indiana Public Retirement System. The answer could have a profound impact on the volume of investor-driven securities litigation and the types of disclosures companies would have to make to attempt to avoid claims of securities fraud.
At issue in Leidos is Item 303 of the SEC’s Regulation S-K, also known as Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Item 303 requires the issuer to describe in its regular filings “any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.” Essentially, the regulation calls for forward-looking statements based on management’s analysis of risks, market trends, or other circumstances that they believe are likely to have a material impact on the company’s performance.
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