(L to R) Jay Dubow, Robert Hickok and Julian Weiss of Troutman Pepper (Photo: Courtesy Photo) Third Circ.: Bad Business Decisions, Without More, Do Not Constitute Federal Securities Fraud
When a public company discloses bad news, often its stock price declines and shareholders' investments similarly decline.
February 25, 2021 at 01:07 PM
8 minute read
When a public company discloses bad news, often its stock price declines and shareholders' investments similarly decline. In some cases, shareholders will seek to recoup that loss by suing the corporation and its officers and directors under Section 10(b) of the Securities Exchange Act (Exchange Act). This law, and SEC Rule 10b-5 which was promulgated thereunder, allow claims against corporations and their officers and directors for making materially misleading statements about the company. This protects shareholders from corporate officers telling half-truths or lying to influence their investment decisions. Multiple issues arise, however, when the claims are based on allegedly misleading statements projecting the future success of the company.
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