OPEN ISSUES ON RISK DISCLOSURES AFTER DISMISSAL OF FACEBOOK SECURITIES FRAUD CASE
In drafting public disclosures, US-listed companies face myriad decisions about what information to include, with how much detail, and what information need not be disclosed. Item 105(a) of Regulation S-K requires disclosure of a company’s ‘risk factors’.
And generally, robust risk disclosures are protective of a company against future investor litigation in the event those risks materialise. But when can a risk factor disclosure itself be actionable and become the basis for an investor action because it is alleged to be misleading?
The United States Supreme Court was presented with this question last year in the case of Facebook v. Amalgamated Bank. There the issue was whether a risk disclosure could be materially misleading if the company disclosed only that a risk may happen when it in fact had already previously occurred.
The Supreme Court, however, ended up dismissing the case as “improvidently granted” just a few weeks after it was argued, leaving in place the various precedents in the circuit courts across the country, including the Ninth Circuit’s ruling in favour of investors in the Facebook case itself.
Particularly during this time of global political and economic uncertainty, robust and accurate risk disclosures could not be more important, but there are also unique challenges in doing so. And without clearer guidance from the Supreme Court, this is likely to be an area of continued litigation for US public companies.
Jul-Sep 2025 issue
Cleary Gottlieb