failed to disclose the fact that IMO 2020 would have a dramatic impact on its bulk liquid storage business.8 The district court dismissed Moab’s complaint,


holding Moab had not “actually plead[ed] an uncertainty that should have been disclosed” or “in what SEC filing or filings the Defendants were supposed to disclose it.”9 Te Second Circuit reversed the district court’s


ruling, holding that, because Macquarie allegedly had an obligation to disclose the risks associated with IMO 2020 under Item 303, this omission could, on its own, support Moab’s securities fraud claims.10 The Second Circuit’s decision was in conflict


with decisions from the Ninth and Tird Circuits.11 (Compare Stratte-McClure v. Morgan Stanley, 776 F. 3d 94, 101 (2d Cir. 2015) with In re Nvidia, 768 F. 3d 1046, 1056 (9th Cir. 2014); Oran v. Stafford, 226 F. 3d 275, 288 (3d Cir. 2000)).


The Opinion In a unanimous opinion authored by Justice Sonia Sotomayor, the Supreme Court reversed the Second Circuit and held that pure omissions are not action- able under Rule 10b-5(b). Te Court explained that Rule 10b-5(b) prohibits


any “untrue statement[s] of a material fact,” as well as omissions of a material fact necessary “to make the statements made … not misleading.”12 The question before the Court was whether


Rule 10b-5(b) bars “pure omissions” in addition to “half-truths.”13


A pure omission occurs when a speaker


says nothing, in circumstances that do not give any particular meaning to that silence.14


In contrast, a half-


truth is a representation that omits critical qualifying information.15


As the Court explained, “the difference


between a pure omission and a half-truth is the dif- ference between a child not telling his parents he ate a whole cake and telling them he had dessert.”16 Te Court held that Rule 10b-5(b) does not pro-


scribe pure omissions.17 First, the Court noted that the text of the rule pro- hibits omitting material facts necessary to make the “statements made … not misleading.”18


As a result, there


must be some identifiable affirmative assertion that could be rendered misleading due to omitted facts.19 Second, the Court compared the language of Rule 10b-5(b) to Section 11(a) of the Securities Act


24 S UMMER 2 0 24 ■ IR UPDAT E


of 1933, which prohibits a registration statement that “contain[s] an untrue statement of a material fact or omit[s] to state a material fact required to be stated therein or necessary to make the statements therein not misleading.”20 Te Court explained that the language in Section 11 concerning omissions of a material fact expressly cre- ated liability for pure omissions and found that the lack of such language in Rule 10b-5(b) demonstrated Congress’s intent to exclude pure omissions from the scope of that rule.21


Te Court emphasized that Sec-


tion 10(b) and Rule 10b-5(b) are about fraud—not a failure to disclose, even when that disclosure is required by SEC rule (such as Item 303).22 Te Court noted that its ruling would not create


“broad immunity” for an issuer’s failure to disclose information that Congress and the SEC required to be disclosed, because misleading half-truths would still be subject to liability under Rule 10b-5(b) and the SEC is still empowered to pursue other violations of the securities laws.23


Takeaways In ruling that pure omissions are not subject to liability under Rule 10b-5(b), the Supreme Court resolved an important circuit split. Going forward, disclosure violations under Item 303 or other omis- sions on their own will not give rise to private liability under Rule 10b-5(b). However, such disclosure violations may still


support a claim for securities fraud liability, when plaintiffs are able to allege and prove an otherwise- misleading statement, and such omissions may be subject to other enforcement action by the SEC. IR


Jennifer L. Conn is a Partner in the Litigation Department at Paul Hastings, LLP; jenniferconn@ paulhastings.com. Sean Donahue is a Partner in the Corporate Department and Chair of the Public Company Advisory practice and Co-Chair of the Shareholder Activism & Takeover Defense practice at Paul Hastings, LLP; seandonahue@paulhastings.com. Zachary S. Zwillinger is an Associate in the Litigation Department at Paul Hastings, LLP; zacharyzwillinger@ paulhastings.com.


Endnotes 1 Op., at *2. 2 Id. 3 Id. 4 Id. at *2-3. 5 Id. at *3. 6 Id. 7 Id. 8 Id. 9 Id. 10 Id. 11 Id. at *4 n.1. 12 Id. at *4. 13 Id. at *5. 14 Id. 15 Id. 16 Id. 17 Id. 18 Id. 19 Id. at *5-6. 20 Id. at *6


(emphasis added).


21 Id. at *6-7. 22 Id. at *7. 23 Id. at *7-8.


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