Answering a precise question increasingly raised by securities fraud plaintiffs, the United States Supreme Court held that a failure to disclose information cannot support a private action under Rule 10b–5(b) if the failure did not render any statements made misleading. Though the Court framed the case around the narrow issue of whether the failure to make required disclosures under SEC Regulation S–K Item 303 is actionable, it also resolved two separate circuit splits, holding that: (i) pure omissions are not actionable under Rule 10b–5(b); (ii) shareholders can bring claims based on Item 303 violations that create misleading half-truths; and (iii) a duty to disclose does not automatically render silence misleading under Rule 10b–5(b).

This decision closes the door on a pure-omissions theory of liability in Rule 10b–5. Although future securities plaintiffs are likely to attempt to reframe omissions claims as half-truths to try to state a valid cause of action, the Supreme Court, speaking unanimously, has issued a strong statement that courts should not countenance such tactics. Instead, plaintiffs must identify a statement made misleading by an alleged omission.

Read our legal update.