Second Circuit Says Failure to Meet MD&A Requirements Can Lead to 10b-5 Liability

January 23, 2015

In Stratte-McClure v. Morgan Stanley, the Second Circuit held that the MD&A disclosure rules set forth in Item 303 of Regulation S-K can give rise to a Rule 10b-5 claim. According to the court, a violation of Item 303’s disclosure requirements can only sustain a claim under Rule 10b‐5 if the allegedly omitted information would also satisfy the Basic v. Levinson test for a fraud claim, including the need to establish materiality and scienter. This ruling departs from the Ninth Circuit’s ruling in In re NVIDIA Corp. that declined to find that the disclosure duty created by Item 303 can form the basis for an actionable securities fraud claim. Read the opinion and analysis.

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