Supreme Court Rules Pure Omissions
Not Actionable under Rule 10b-5(b)
The result of the Supreme Court ruling means disclosure violations under Item 303 or other omissions on their own will not give rise to private liability under Rule 10b-5(b).
BY JENNIFER L. CONN, SEAN DONAHUE AND ZACHARY S. ZWILLINGER
E
arlier this year, the U.S. Supreme Court issued its decision in Macquarie Infrastructure Corp. v. Moab Partners, L.P., No. 22-1165, 601 U.S. (Apr. 12, 2024), in which the Court
held that pure omissions are not actionable under Securities and Exchange Commission (SEC) Rule 10b-5(b), resolving a circuit split concerning whether private securities fraud claims could be based on an issuer’s failure to disclose information required under Item 303 of SEC Regulation S-K.
Legal Backdrop Section 10(b) of the Securities Exchange Act of 1934 makes it “unlawful for any person … [t]o 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.” Te SEC implemented this prohibition in Rule 10b-5(b), which
makes it unlawful for issuers of registered securities to “make any untrue statement of a material fact or to omit to state a material
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fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” Separately, Section 13(a) of the Exchange Act requires issu- ers to file periodic informational statements. Tese statements contain the information required by Item 303 of Regulation S-K, including a description of “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.”
Factual Background and Procedural History Macquarie Infrastructure Corporation (Macquarie) owns a sub- sidiary that operates large “bulk liquid storage terminals” in the United States.1
One of the commodities stored in these terminals
is No. 6 fuel oil, a fuel oil that typically has a sulfur content of approximately 3%.2
In 2016, the United Nations’ International
Maritime Organization formally adopted IMO 2020, a regulation that capped the sulfur content of fuel oil used in shipping at 0.5% by the beginning of 2020.3 Following the adoption of IMO 2020, Macquarie purportedly did not discuss that regulation in its disclosures.4
In 2018, Macquarie
announced that demand for its subsidiary’s storage terminals had dropped in part because of the structural decline in the No. 6 fuel oil market.5
Tis announcement allegedly caused Macquarie’s
stock price to drop by 41%.6 Following the drop in Macquarie’s share price, Moab Partners,
L.P. (Moab) sued Macquarie and various officers alleging, inter alia, violations of Section 10(b) and Rule 10b-5.7
Macquarie’s statements were false and misleading because it IR UPDAT E ■ S UMMER 2 0 24 2 3 Moab argued
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