Supreme Court Ruling Sets Precedent for Securities Lawsuits Against Public Companies

Supreme Court Ruling Sets Precedent for Securities Lawsuits Against Public Companies

Supreme Court Ruling Sets Precedent for Securities Lawsuits Against Public Companies

The U.S. Supreme Court made a significant decision affecting how lawsuits can be filed against public companies under specific securities laws (Macquarie Infrastructure Corp. v. Moab Partners).

Macquarie Infrastructure Corporation, a company involved in various infrastructure projects, didn’t disclose how a new regulation (IMO 2020) would negatively affect its business. This regulation aimed to stop the use of a certain type of fuel oil, which Macquarie stored and handled.

Investors sued Macquarie (under Rule 10(b) and Rule Rule 10b5), claiming the company should have told its shareholders that the new regulation would hurt its business. They argued this under a rule that requires companies to report anything that could significantly impact their financial health.

Initially, a lower court dismissed the lawsuit, but the appeals court disagreed, suggesting the case could proceed based on the company’s failure to disclose these important details. This led to different opinions among various courts, creating a need for a definitive ruling from the Supreme Court.

The Supreme Court decided that just failing to mention something important (pure omissions) isn’t enough to be sued under the specific securities law they were considering. Therefore, this decision makes it harder for shareholders in the future to sue companies unless they can prove that the company’s failure to disclose certain information made their other public statements untrue or misleading.

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