U.S. Supreme Court, Macquarie Infrastructure Corp. v. Moab Partners, L.P., Docket No. 22-1165

Securities

 

Securities Fraud Claim

 

Duty to Disclose

 

Pure Omissions

 

Private Action Under Rule 10b–5(b)

 

Section 10(b) of the Securities Exchange Act of 1934

 

Circuit Split

 

 

 

 

Securities and Exchange Commission (SEC) Rule 10b–5(b) makes it unlawful to omit material facts in connection with buying or selling securities when that omission renders “statements made” misleading. Separately, Item 303 of SEC Regulation S–K requires companies to disclose certain information in periodic filings with the SEC. The question in this case is whether the failure to disclose information required by Item 303 can support a private action under Rule 10b–5(b), even if the failure does not render any “statements made” misleading. The Court holds that it cannot. Pure omissions are not actionable under Rule 10b–5(b).

 

 

Section 10(b) of the Securities Exchange Act of 1934 makes it “unlawful for any person . . . to use or employ, in connection with the purchase or sale of any security . . ., any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the SEC may prescribe.” 48 Stat. 891, 15 U. S. C. §78j(b). Rule 10b–5 implements this prohibition and makes it unlawful for issuers of registered securities to “make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 CFR §240.10b–5(b) (2022). This Court “has found a right of action implied in the words of §10(b) and its implementing regulation.” Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157 (2008).

 

 

Section 13(a) of the Exchange Act requires issuers to file periodic informational statements. See 15 U. S. C. §§78m(a)(1), 78l(b)(1). These statements include the “Management’s Discussion and Analysis of Financial Conditions and Results of Operation” (MD&A), in which companies must “furnish the information required by Item 303 of Regulation S–K.” See SEC Form 10–K; SEC Form 10–Q. Item 303, in turn, requires companies to “describe any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.” 17 CFR §229.303(b)(2)(ii) (2022).

 

 

(…) The courts of appeals disagree on whether a failure to make a disclosure required by Item 303 can support a private claim under §10(b) and Rule 10b–5(b) in the absence of an otherwise-misleading statement.1 This Court granted certiorari to resolve that disagreement. 600 U. S. ___ (2023).

 

 

1 Compare Stratte-McClure v. Morgan Stanley, 776 F. 3d 94, 101 (CA2 2015) (“Item 303’s affirmative duty to disclose in Form 10–Qs can serve as the basis for a securities fraud claim under Section 10(b)”), with In re Nvidia, 768 F. 3d 1046, 1056 (CA9 2014) (“Item 303 does not create a duty to disclose for purposes of Section 10(b) and Rule 10b–5”); see also Oran v. Stafford, 226 F. 3d 275, 288 (CA3 2000) (“The ‘demonstration of a violation of the disclosure requirements of Item 303 does not lead inevitably to the conclusion that such disclosure would be required under Rule 10b–5. Such a duty to disclose must be separately shown’”).

 

 

Rule 10b–5(b) makes it unlawful “to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 CFR §240.10b–5(b). This Rule accomplishes two things. It prohibits “any untrue statement of a material fact”—i.e., false statements or lies. Ibid. It also prohibits omitting a material fact necessary “to make the statements made . . . not misleading.” Ibid. This case turns on whether this second prohibition bars only half-truths or instead extends to pure omissions.

A pure omission occurs when a speaker says nothing, in circumstances that do not give any particular meaning to that silence.

 

 

Rule 10b–5(b) does not proscribe pure omissions. The Rule prohibits omitting material facts necessary to make the “statements made . . . not misleading.” Put differently, it requires disclosure of information necessary to ensure that statements already made are clear and complete (…). This Rule therefore covers half-truths, not pure omissions. Logically and by its plain text, the Rule requires identifying affirmative assertions (i.e., “statements made”) before determining if other facts are needed to make those statements “not misleading.”

 

 

(…) It once again “bears emphasis that §10(b) and Rule 10b–5(b) do not create an affirmative duty to disclose any and all material information.

Disclosure is required under these provisions only when necessary ‘to make . . . statements made, in the light of the circumstances under which they were made, not misleading.’” Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. 27, 44 (2011) (quoting Rule 10b–5(b)).

 

 

Statutory context confirms what the text plainly provides. Congress imposed liability for pure omissions in §11(a) of the Securities Act of 1933. Section 11(a) prohibits any registration statement that “contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” 15 U. S. C. §77k(a). By its terms, in addition to proscribing lies and half-truths, this section also creates liability for failure to speak on a subject at all. See Omnicare, 575 U. S., at 186, n. 3 (“Section 11’s omissions clause also applies when an issuer fails to make mandated disclosures—those ‘required to be stated’—in a registration statement”). There is no similar language in §10(b) or Rule 10b–5(b). Cf. Ernst & Ernst v. Hochfelder, 425 U. S. 185, 208 (1976).

 

 

“Silence, absent a duty to disclose, is not misleading under Rule 10b–5.” Basic Inc. v. Levinson, 485 U. S. 224, 239, n. 17 (1988). Even a duty to disclose, however, does not automatically render silence misleading under Rule 10b–5(b). Today, this Court confirms that the failure to disclose information required by Item 303 can support a Rule 10b–5(b) claim only if the omission renders affirmative statements made misleading.

(Fn. 2: Moab and the United States spill much ink fighting the question presented, insisting that this case is about half-truths rather than pure omissions. The Court granted certiorari to address the Second Circuit’s pure omission analysis, not its half-truth analysis. See Pet. for Cert. I (“Whether . . . a failure to make a disclosure required under Item 303 can support a private claim under Section 10(b), even in the absence of an otherwise-misleading statement”); see also 2022 WL 17815767, *1 (Dec. 20, 2022) (distinguishing between these “two circumstances”). The Court does not opine on issues that are either tangential to the question presented or were not passed upon below, including what constitutes “statements made,” when a statement is misleading as a half-truth, or whether Rules 10b–5(a) and 10b–5(c) support liability for pure omissions.) 

 

 

 

 

 

(U.S. Supreme Court, April 12, 2024, Macquarie Infrastructure Corp. v. Moab Partners, L.P., Docket No. 22-1165, J. Sotomayor, Unanimous)

Amgen Inc. v. Connecticut Retirement Plans and Trust Funds

Securities: damages in a private securities-fraud action under §10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b–5: to recover damages in a private securities-fraud action under §10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b–5, a plaintiff must prove, among other things, reliance on a material misrepresentation or omission made by the de­fendant. Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. ___, ___. Requiring proof of direct reliance “would place an unnecessarily un­realistic evidentiary burden on a plaintiff who has traded on an im­personal market.” Basic Inc. v. Levinson, 485 U. S. 224, 245. Thus, this Court has endorsed a “fraud-on-the-market” theory, which per­mits securities-fraud plaintiffs to invoke a rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market. Id., at 241–249. The fraud-on-the­ market theory facilitates the certification of securities-fraud class ac­tions by permitting reliance to be proved on a classwide basis. Invoking the fraud-on-the-market theory, respondent Connecticut Retirement Plans and Trust Funds (Connecticut Retirement) sought certification of a securities-fraud class action under Federal Rule of Civil Procedure 23(b)(3) against biotechnology company Amgen Inc. and several of its officers (collectively, Amgen). The District Court certified the class, and the Ninth Circuit affirmed. The Ninth Circuit rejected Amgen’s argument that Connecticut Retirement was re­quired to prove the materiality of Amgen’s alleged misrepresenta­tions and omissions before class certification in order to satisfy Rule 23(b)(3)’s requirement that “questions of law or fact common to class members predominate over any questions affecting only individual members.” The Ninth Circuit also held that the District Court did not err in refusing to consider rebuttal evidence that Amgen had presented on the issue of materiality at the class-certification stage. Held: proof of materiality is not a prerequisite to certification of a secu­rities-fraud class action seeking money damages for alleged violations of §10(b) and Rule 10b–5 (U.S.S.Ct., 27.02.13, Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, J. Ginsburg).

Papiers- valeurs (securities) : action en dommages-intérêts basée sur une fraude en matière de transactions portant sur des papiers-valeurs. Pour se faire adjuger ses conclusions en dommages-intérêts, le demandeur doit notamment prouver s'être fié à une fausse représentation ou à une fausse omission de nature matérielle faite par le défendeur. N'est pas requise la preuve d'un lien de causalité direct entre la tromperie et l'acte ou l'omission du demandeur sur le marché. Ainsi, la Cour retient la théorie de la "fraude sur le marché", selon laquelle le demandeur peut invoquer la présomption réfragable qu'il s'est fié à de fausses déclarations matérielles et publiques relatives à des papiers-valeurs échangés sur un marché effectif. Cette théorie facilite la certification d'actions de classe en matière de papiers-valeurs, en permettant d'apporter la preuve de "s'être fié à" au niveau de la classe elle-même et non au niveau d'un demandeur individuel. Est rejeté l'argument consistant à soutenir que les demandeurs sont tenus de prouver la matérialité de la représentation frauduleuse pour obtenir la certification de la classe.

Janus Capital Group, Inc. v. First Derivative Traders

Securities and Exchange Commission (SEC) Rule 10b–5: Securities and Exchange Commission (SEC) Rule 10b–5, which forbids “any person . . . to make any untrue statement of a material fact” in connection with the purchase or sale of securities. The complaint alleged, inter alia, that JCG and its wholly owned subsidiary, petitioner Janus Capital Management LLC (JCM), made false statements in mutual fund prospectuses filed by Janus Investment Fund—for which JCM was the investment adviser and administrator—and that those statements affected the price of JCG’s stock. Although JCG created Janus Investment Fund, it is a separate legal entity owned entirely by mutual fund investors. The District Court dismissed the complaint for failure to state a claim. The Fourth Circuit reversed, holding that First Derivative had sufficiently alleged that JCG and JCM, by participating in the writing and dissemination of the prospectuses, made the misleading statements contained in the documents; because the false statements included in the prospectuses were made by Janus Investment Fund, not by JCM, JCM and JCG cannot be held liable in a private action under Rule 10b–5; although neither Rule 10b–5 nor the statute it interprets, §10(b) of the Act, expressly creates a private right of action, such an “action is implied under §10(b).” Superintendent of Ins. of N. Y. v. Bankers Life & Casualty Co., 404 U. S. 6, 13, n. 9. That holding “remains the law,” Stoneridge Investment Partners, LLC v. Scientific Atlanta, Inc., 552 U. S. 148, 165, but, in analyzing the question at issue, the Court is mindful that it must give “narrow dimensions . . . to a right . . . Congress did not authorize when it first enacted the statute and did not expand when it revisited” it, id., at 167; for Rule 10b–5 purposes, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it. Without control, a person or entity can merely suggest what to say, not “make” a statement in its own right. This rule follows from Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164, 180, which held that Rule 10b–5’s private right of action does not include suits against aiders and abettors who contribute “substantial assistance” to the making of a statement but do not actually make it. Reading “make” more broadly, to include persons or entities lacking ultimate control over a statement, would substantially undermine Central Bank by rendering aiders and abettors almost nonexistent. The Court’s interpretation is also suggested by Stoneridge, 552 U. S., at 161, and accords with the narrow scope that must be given the implied private right of action, id., at 167; although JCM may have been significantly involved in preparing the prospectuses, it did not itself “make” the statements at issue for Rule 10b–5 purposes. Its assistance in crafting what was said was subject to Janus Investment Fund’s ultimate control (U.S.S.Ct., 13.06.11, Janus Capital Group, Inc. v. First Derivative Traders, J. Thomas).

La Règle 10b-5 de la SEC interdit à toute personne de faire des déclarations inexactes portant sur des faits matériels en lien avec l’achat ou la vente de Securities. En l’espèce, la demande allègue que JCG et sa filiale JCM (qu’elle détient en totalité) ont fait de fausses déclarations dans des prospectus de Fonds Mutuels émis par JIF, et allègue que ces fausses déclarations ont affecté le prix des actions de JCG. JCM était le conseiller en investissements et l’administrateur de JIF. Bien que JCG ait fondé JIF, il s’agit d’une entité juridique distincte entièrement détenue par des investisseurs du Fond Mutuel. La Cour juge que ni JCM ni JCG ne peuvent être tenues responsables, sous l’angle de la Règle 10b-5, des fausses déclarations contenues dans les prospectus émis par JIF. Seule JIF a faussement déclaré. Bien que ni la Règle 10b-5 ni la loi fédérale qu’elle interprète, soit le §10(b), ne crée expressément un droit d’action en faveur d’un privé lésé, une telle action existe implicitement selon le §10(b). Mais en analysant la présente affaire, la Cour est consciente qu’elle doit donner un cadre étroit à un droit que le Congrès s’est abstenu d’établir lorsqu’il a voté la loi fédérale précitée, et qu’il s’est abstenu d’étendre par la suite. Ainsi, s’agissant de la Règle 10b-5, l’auteur d’une déclaration (comme en l’espèce l’auteur d’une déclaration dans un prospectus) est la personne physique ou morale qui dispose de l’autorité ultime de décider du contenu de la déclaration et de la manière de la communiquer. Sans cette possibilité de contrôle ultime, une personne physique ou morale ne peut suggérer ce qu’il convient de dire ou d’omettre de dire, sans pouvoir faire elle-même une déclaration ultime. Le droit d’action en faveur des individus prévu par la Règle 10b-5 n’inclut pas de droit d’action contre les «complices » qui ont apporté une assistance substantielle à la préparation de la déclaration, mais qui n’ont pas de fait procédé à dite déclaration. Dans la présente affaire, bien que JCM ait pu être significativement impliquée dans la préparation des prospectus d’émission, JCM n’a pas fait elle-même les déclarations au sens de la Règle 10b-5. L’assistance procurée par JCM était sujette au contrôle ultime de JIF.

Matrixx v. Siracusano

Securities: securities fraud class action, to fail to disclose: securities fraud class action, alleging that petitioners (hereinafter Matrixx) violated §10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule10b–5 by failing to disclose reports of a possible link between Matrixx’s leading product, Zicam Cold Remedy, and loss of smell (anosmia), rendering statements made by Matrixx misleading; the complaint adequately alleged information linking Zicam and anosmia that would have been significant to a reasonable investor. It also held that Matrixx’s withholding of information about reports of adverse effects and about pending lawsuits by Zicam users gave rise to a strong inference of scienter.

Held: Respondents have stated a claim under §10(b) and Rule 10b–5.

a ) To prevail on their claim, respondents must prove, as relevant here, a material misrepresentation or omission by Matrixx and scienter. See Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157; under Basic Inc. v. Levinson, 485 U. S. 224, §10(b)’s materiality requirement is satisfied when there is “ ‘a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available.’ ” Id., at 231–232; Matrixx’s premise that statistical significance is the only reliable indication of causation is flawed. Both medical experts and the Food and Drug Administration rely on evidence other than statistically significant data to establish an inference of causation. It thus stands to reason that reasonable investors would act on such evidence. Because adverse reports can take many forms, assessing their materiality is a fact-specific inquiry, requiring consideration of their source, content, and context. The question is whether a reasonable investor would have viewed the nondisclosed information as having significantly altered the “total mix” of information made available. Applying Basic’s “total mix” standard here, respondents adequately pleaded materiality; respondents have also adequately pleaded scienter, “ ‘a mental state embracing intent to deceive, manipulate, or defraud,’ ” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U. S. 308, 319; under the Private Securities Litigation Reform Act of 1995, a complaint adequately pleads scienter “only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.” Id., at 324 (U.S.S.Ct., 22.03.11, Matrixx v. Siracusano, J. Sotomayor, unanimous).

Securities, action de classe contre l’entreprise, motivée par une fraude à l’encontre de l’investisseur, consistant à ne pas publier des informations déterminantes. L’action de l’investisseur est ici fondée sur le §10(b) de la loi fédérale de 1934 sur les transactions en matière de Securities et sur la Règle 10b-5 de la SEC. Est reprochée l’omission par l’entreprise de publier des rapports établissant un lien possible entre la prise du produit pharmaceutique phare de l’entreprise et la perte de l’odorat comme effet secondaire, rendant ainsi trompeuses les déclarations faites par l’entreprise. C’est à juste titre que la demande allègue que l’information liant le médicament à l’effet secondaire est de nature significative pour un investisseur raisonnable. C’est également à juste titre que le demandeur allègue que la rétention de l’information par l’entreprise portant sur les rapports mentionnant l’effet secondaire, ainsi que la rétention de l’information concernant l’existence de procédures déposées contre l’entreprise par des consommateurs du médicament impliquent une forte présomption d’intention. Par conséquent, la Cour juge que les demandeurs à l’action de classe ont valablement établi les motifs permettant d’instruire leur action.

Pour l’emporter au fond, les demandeurs doivent prouver une fausse représentation matérielle ou une omission, ainsi qu’une intention. Selon la jurisprudence Basic v. Levinson, l’exigence de matérialité au sens de la Section §10(b) est satisfaite lorsqu’existe une vraisemblance substantielle que la publication du fait dissimulé aurait été considérée par un investisseur raisonnable comme un événement qui aurait pu significativement modifier le « mélange complet » d’informations disponibles. L’entreprise défenderesse allègue à tort que seules des données statistiques peuvent constituer des indications fiables s’agissant du critère de la causalité. En effet, aussi bien les experts médicaux que la FDA se réfèrent à d’autres moyens de preuves que des données statistiques pour inférer de la causalité. Il se conçoit ainsi qu’un investisseur raisonnable se base lui aussi sur les autres critères, comme le font les experts médicaux et la FDA. De manière générale, les rapports défavorables à une entreprise défenderesse dans ce type de litiges peuvent prendre des formes variées. Par conséquent, se prononcer sur leur matérialité se fait au cas par cas, qui requiert la prise en compte de la source des rapports, de leur contenu et de leur contexte. La question déterminante est celle de savoir si un investisseur raisonnable aurait considéré l’information dissimulée comme susceptible de modifier significativement le « mélange complet » d’informations disponibles. En invoquant en l’espèce le standard du « mélange total » découlant de la jurisprudence Basic, les demandeurs ont plaidé la matérialité de manière suffisante. Ils ont également plaidé l’intention de manière suffisante, soit un état mental qui implique l’intention de tromper, de manipuler ou de frauder. Selon la loi fédérale de 1995 sur la réforme de la procédure en matière de « Private Securities », un demandeur plaide l’intention de manière suffisante s’il peut démontrer qu’une personne raisonnable considérerait l’inférence d’une intention comme s’imposant, à tout le moins comme s’imposant autant que toute autre inférence contraire que l’on pourrait tirer des faits de la cause.