82 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 83 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C Significant Exchange Act Liability Decision Expected at the Supreme Court Item 303 of SEC Regulation S-K requires issuers to “identify any known trends… that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way.” While there is no private right of action on the part of investors solely for an issuer’s violation of Item 303, investors may have recourse for such an omission under Section 10(b) of the Securities Exchange Act of 1934, as well as under Sections 11 and 12 of the Securities Act of 1933 (assuming the other elements of those claims are satisfied). The federal courts of appeal are split on what a plaintiff must plead to give rise to a Section 10(b) claim predicated on a failure to disclose under Item 303 of Regulation S-K. The Third, Ninth, and Eleventh Circuits have held that a failure to make a disclosure required by Item 303 can form the basis of a Section 10(b) claim only where the omission renders an issuer’s other affirmative statements materially misleading. The Second Circuit, on the other hand, has held that a failure to disclose under Item 303, standing alone, can give rise to a claim under Section 10(b). The Supreme Court is expected to resolve the question during its current term in Macquarie Infrastructure Corp. v. Moab Partners, L.P. Macquarie operated a number of infrastructure-related businesses, including a subsidiary that provided storage for a particular type of fuel used by large shipping vessels, which the plaintiff alleged comprised the largest segment of the subsidiary’s fuel storage business. In 2008, the International Maritime Organization (the “IMO”), a United Nations agency that regulates global shipping, adopted a regulation aimed at reducing Sulphur oxide emissions by banning the use of shipping fuels with a Sulphur content of 0.5% or greater by 2020. The regulation’s effect was to potentially eliminate entirely the use of the particular type of shipping fuel stored by the Macquarie subsidiary, which had a Sulphur content of approximately 3%. In 2016, the IMO reaffirmed its intention to implement the regulation by 2020, but some industry participants and commentators believed certain technologies might be employed by market participants to abate Sulphur oxide emissions, thereby avoiding a complete ban of the shipping fuel in question. Macquarie did not disclose the potential risk to its fuel subsidiary’s business posed by the IMO regulation. On February 22, 2018, Macquarie announced that, among other things, utilization of the fuel storage subsidiary’s capacity had declined, the subsidiary missed its financial projections, and that in December 2017 and January 2018 many of the subsidiary’s customers had terminated their contracts and exited the industry. Macquarie’s stock price declined 41% on the news. Stockholders filed a securities class action in federal court in New York, alleging that Macquarie had been aware since 2016 of the “cataclysmic” Securities Litigation John Neuwirth Co-Head New York john.neuwirth@weil.com Caroline Zalka Co-Head New York caroline.zalka@weil.com S E C
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