With securities class actions at an all-time high, this article takes a closer look at the securities class action that will likely follow companies facing a negative operational event.
Often referred to as "event-driven" securities litigation, these types of cases have resulted in courts frequently having to decide whether a statement made by an issuer before the negative operational event was misleading by omission. However, in attempting to apply the language of Rule 10b-5 concerning statements that are misleading by omission, there are cases that make incredibly broad assertions concerning an issuer's duty to disclose. Moreover, these broad statements confuse more than enlighten, are inconsistent with the rule which requires statements to be "misleading," and result in courts finding statements to be "misleading" that are not.
"We need a consistent and appropriately rigorous standard, so that companies can draft their disclosures accordingly, and so that not every negative operational event that a company faces becomes a lawsuit alleging securities fraud," concludes author and Litigation partner Richard Zelichov.
Read "Standards Vary for ‘Misleading' Statements in Stock Suits" in its entirety.