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News & Events

10.22.2015

Why Item 303 Just Doesn’t Matter in Securities Litigation

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Lane Powell Shareholder Doug Greene authored an October 13 Law360 article titled “Why Item 303 Just Doesn’t Matter in Securities Litigation.” In the article, Greene discussed Item 303 of Regulation S-K and why it doesn’t matter in private securities litigation.

Does Item 303 of Regulation S-K matter in private securities litigation? … [W]hile this issue seems important, it really isn’t — as a practical matter, a claim under Item 303 doesn’t add much, if anything, to a plain vanilla claim alleging that a statement was misleading for omitting the same information. …

… Why, then, have plaintiffs’ counsel pushed Item 303 claims so hard? I believe it’s mostly to combat the cardinal rule that silence, absent a duty to disclose, is not misleading. Companies omit thousands of facts every time they speak, and it’s relatively easy for a plaintiff to identify omitted facts — but it’s analytically difficult work, and often unsuccessful, to challenge affirmative statements.

Another important reason is defendants’ attack on the fraud on the market presumption of reliance over the past several years — first to the legitimacy of Basic v. Levinson, which gave rise to securities class actions, and now to its viability in specific cases under the price-impact rule of Halliburton II. Claims of pure omission under Item 303 arguably would fall under the Affiliated Ute presumption of reliance, rather than under Basic, which would make class certification easier and more certain.  …

… Whatever the reason, I hope parties and courts don’t waste time litigating over Item 303 further. It just doesn’t matter.