Navigating the Gray: Legal Implications of Non-Disclosure in Securities Law

A landmark rule from the country’s highest court arrived on Friday. The Supreme Court ruled 9-0 in Macquarie Infrastructure Corp. vs Moab Partners that private parties cannot legally sue public securities issuers over pure omissions in disclosure documents.

The details on the case are quite captivating. Hedge fund manager Moab Partners sued Macquarie Infrastructure Corporation for not disclosing how a UN regulation would severely impact their business flow. Because of a cap on the sulfur content in oil for shipping vessels, Macquarie’s subsidiary that stored a specific liquid fuel with sulfur content well over the new regulation faced a sharp drop in business. Despite being aware of the impending regulatory changes and substantial renovation costs required to retrofit existing infrastructure, Macquarie did not alert investors to the business risks.

While false and misleading statements are still potential grounds for a suit, the Supreme Court overruled the 2nd Circuit Court of Appeals and declared that simply not disclosing information does not violate the SEC Rule 10b-5(b). Legal scholars at Faegre & Drinker say the omission must render other affirmative statements misleading in order to violate the Rule. The decision may not be a deciding factor for companies considering going public, but the added protection is certainly a tally in the pro column.