Background
In 2016, the UN adopted regulations limiting sulfur content in shipping fuel starting in 2020. Macquarie did not initially disclose the impact of this on its fuel storage business. In 2018, it announced lower contracted storage and its stock price dropped 41%.
Lawsuit and Appeal
Moab Partners sued Macquarie under SEC Rule 10b-5 for omitting material facts. The district court dismissed the case, but the appeals court reversed, finding Macquarie violated SEC disclosure requirements.
Supreme Court Decision
“SEC rule 10b-5(b) makes it unlawful to omit material facts in connection with buying or selling securities when that omission renders “statements made” misleading. Separately, Item 303 of SEC Regulation S-K requires companies to disclose certain information in periodic filings with the SEC. The question before the Court was whether the failure to disclose information required by Item 303 can support a private action under Rule 10b-5(b), even if the failure does not render any “statements made” misleading.” Macquarie Infrastructure Corporation, et al., Petitioners v. Moab Partners, L.P., et al. (2024); 601 U.S., No. 22-1165 at pg. 1.
The Court ruled pure omissions are not actionable under Rule 10b-5, only misleading half-truths. The Court held failures to disclose under SEC requirements can only support 10b-5 claims if they render affirmative statements misleading. It rejected arguments that investors expect full disclosure, as that would improperly focus securities law on disclosure rather than fraud.
The takeaway from this case is that investors must carefully review company disclosures and ask the right questions, before acting under Rule 10b-5. Fundamentally, investors retain the right to sue for “half-truths”, but company silence alone is not enough. Finally, while shareholders may not pursue 10b-5 remedies, they remain free to pursue other remedies that may provide the ultimate relief being sought.
