84 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 85 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 Securities Litigation S E C impact the IMO regulation could have on the fuel subsidiary’s business but failed to disclose that information to investors. The plaintiff alleged that the failure to disclose the risk posed by the IMO regulation under Item 303 of Regulation S-K, standing alone, gave rise to Section 10(b) liability and that the failure to make the disclosure also rendered Macquarie’s statements about its customer base misleading. The district court dismissed the complaint, holding that the plaintiff failed to adequately plead that defendants knew the precise risks posed by the IMO regulation, or that Macquarie’s general statements about the fuel subsidiary’s customers and general risks facing the subsidiary’s business were rendered materially misleading by the alleged omission. The Second Circuit reversed, holding both that the failure to disclose under Item 303 alone can gave rise to potential liability under Section 10(b), and that plaintiff adequately alleged that the failure to disclose the specific risk posed by the IMO regulation rendered Macquarie’s statements about the fuel subsidiary’s customers materially misleading despite general regulatory risk disclosures. With respect to Item 303, the Second Circuit considered the SEC’s interpretive guidance, which stated that an issuer must “assum[e]” that a trend or uncertainty “will come to fruition” and disclose it “unless [the issuer’s] management determines that a material effect on the [issuer’s] financial condition or results of operations is not reasonably likely to occur.” The Second Circuit concluded that, in light of plaintiff’s allegations, which the court was required to accept as true at the pleading stage, “it would not have been ‘objectively reasonable’ for Defendants to determine that [the IMO regulation] would not likely have a material effect on [Macquarie’s] financial condition or operations,” and, thus, disclosure was required thereby giving rise to a claim under Section 10(b). (The Second Circuit also found the other elements of a Section 10(b) claim to be adequately alleged.) The Supreme Court granted review of the following question: “Whether the Second Circuit erred in holding—in conflict with decisions of the Third, Ninth, and Eleventh Circuits—that a failure to make a disclosure required under Item 303 of SEC Regulation S-K can support a private claim under § 10(b) of the Securities Exchange Act, even in the absence of an otherwisemisleading statement.” Oral argument was held on January 16, 2024, and a decision is expected by the end of the current term in June 2024. The decision will likely provide important guidance for issuers assessing litigation risks in considering disclosure questions around known business trends. Second Circuit Gives Teeth to Potent Securities Class Certification Defense Over the past several years, we have highlighted a long-running class certification dispute in a securities class action involving Goldman Sachs that raises important questions about the extent of a trial court’s authority to consider price impact of alleged misstatements or omissions at the class certification stage in deciding whether defendants have rebutted the presumption of reliance on the alleged misstatement or omission. The case has wound its way up and down the federal courts, and, in 2021, yielded an important decision for defendants from the Supreme Court, which held that the “generic nature” of an alleged misrepresentation “often is important evidence of price impact that courts should consider at class certification” because the theory “that the back-end price drop equals front-end inflation … starts to breakdown when there is a mismatch between the contents of the misrepresentation and the corrective disclosure.” Goldman Sachs Grp., Inc. v. Arkansas Teacher Ret. Sys., 594 U.S. 113, 117 (2021). In Goldman, the plaintiffs challenged general statements that Goldman Sachs, among other things, is “dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern [it],” that
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