Amicus Curiae Brief — Macquarie Infrastructure Corporation, et al., Petitioners v. Moab Partners, L.P., et al.

No. 22-1165

IN THE

Supreme Court of the United States

__________

MACQUARIE INFRASTRUCTURE CORP., ET AL.,

Petitioners,

v.

MOAB PARTNERS, L.P. ET AL.,

___________

Respondents.

On Writ of Certiorari

to the United States Court of Appeals

for the Second Circuit

___________

BRIEF OF FORMER SEC OFFICIALS

AS AMICI CURIAE IN SUPPORT

OF RESPONDENTS

___________

DANIEL P. CHIPLOCK

LIEFF CABRASER HEIMANN

& BERNSTEIN, LLP

250 Hudson Street

New York, NY 10013

(212) 355-9500

dchiplock@lchb.com

JOHN PAUL SCHNAPPER-CASTERAS

Counsel of Record

RACHAEL R. YOCUM

SCHNAPPER-CASTERAS PLLC

1717 K Street NW, Suite 900

Washington, D.C. 20006

(202) 630-3644

jpsc@schnappercasteras.com

LAURA H. POSNER

COHEN MILSTEIN SELLERS

& TOLL PLLC

88 Pine Street, 14th Floor

New York, NY 10005

(212) 838-7797

lposner@cohenmilstein.com

CAROL V. GILDEN

COHEN MILSTEIN SELLERS

& TOLL PLLC

190 S. La Salle Street,

Suite 1705

Chicago, IL 60603

cgilden@cohenmilstein.com

Counsel for Amici Curiae

i

TABLE OF CONTENTS

Interest of Amici Curiae ............................................ 1

Summary of Argument............................................... 4

Argument .................................................................... 5

I.

THE HISTORY OF ITEM 303 CONFIRMS

IT IS AN ENFORCEABLE DISCLOSURE

REQUIREMENT UNDER RULE 10b-5. ................ 10

A. The SEC’s Enduring Position is That Violating

Item 303 or Other Disclosure Requirements Can

Predicate a Rule 10b-5 Claim ................................ 11

B. The SEC has Stressed the Importance of

Accurate, Material Disclosures Under Item 303,

and Warned Against Over-Disclosure................... 14

C. The Legislative History of Rule 10b-5

Confirms its Breadth ............................................. 17

D. Petitioners’ Amici Largely Supported Recent

Revisions to Item 303 and Did Not Raise

Concerns About its Enforcement or Breadth........ 20

II.

PRIVATE ENFORCEMENT OF

SECURITIES LAWS, INCLUDING SECTION 10(b),

IS IMPORTANT, UNIQUE, AND COMPLEMENTARY TO OTHER SEC EFFORTS. ............... 23

Conclusion................................................................. 26

ii

TABLE OF AUTHORITIES

CASES

Basic Inc. v. Levinson, 485 U.S. 224 (1988)...... 7, 9, 11

Bateman Eichler, Hill Richards, Inc. v. Berner,

472 U.S. 299 (1985) ................................................ 23

Blue Chip Stamps v. Manor Drug Stores,

421 U.S. 723 (1975) ................................................ 13

Dura Pharmaceuticals, Inc. v. Broudo,

544 U.S. 336 (2005) ................................................ 23

J.I. Case Co. v. Borak, 377 U.S. 426 (1964) .............. 23

SEC v. Conaway,

698 F. Supp. 2d 771 (E.D. Mich. 2010) ................. 13

SEC v. CVS Caremark Corp.,

No. 14-cv-177 (D.R.I. Apr. 8, 2014) ....................... 13

SEC v. Zanford, 535 U.S. 813 (2002) ........................ 11

Slack Techs., LLC v. Pirani,

598 U.S. 759 (2023) ................................................ 18

Stoneridge Inv. Partners, LLC v.

Scientific-Atlanta, Inc., 552 U.S. 148 (2008)......... 19

Tellabs, Inc. v. Makor Issues & Rts., Ltd.,

551 U.S. 308 (2007) .......................................... 23, 24

STATUTES

15 U.S.C. § 77k .......................................................... 18

15 U.S.C. § 78u .......................................................... 19

15 U.S.C. § 7241 ......................................................... 19

REGULATORY MATERIALS

17 C.F.R. § 229.303 .............................................. 10, 15

17 C.F.R. § 240.10b-5 ........................................... 15, 17

17 C.F.R. § 229.504 .................................................... 13

Commission Guidance Regarding Management's

Discussion and Analysis of Financial Condition and

iii

Results of Operations, Release No. 33-8350,

68 Fed. Reg. 75,056 (Dec. 19, 2003) .......... 11, 16, 17

Commission Statement About Management’s

Discussion and Analysis of Financial Condition

and Results of Operations,

67 Fed. Reg. 3746 (Jan. 25, 2002) ......................... 10

Critical Accounting Policies, Exchange Act

Release No. 34-45907,

2002 WL 970847 (May 10, 2002) ........................... 11

Federal Register :: Document Search Results

‘material,’ ................................................................ 15

In re Caterpillar, Inc., SEC Accounting and Auditing

Enforcement Release No. 363, [1991-1995

Accounting and Auditing Enforcement Releases

Transfer Binder] Fed. Sec. L. Rep. (CCH)

73,830 (Mar. 31, 1992) ........................................... 12

In re Ciro, Inc., Exchange Act Release No. 34,767,

57 SEC Docket 1896 (Sept. 30, 1994) .................... 13

In re Cypress Bioscience Inc., Exchange Act

Release No. 37,701, 62 SEC Docket 2286

(Sept. 19, 1996) ....................................................... 12

In re Fitzpatrick, Exchange Act Release No. 34,865,

57 SEC Docket 2178 (Oct. 20, 1994) ..................... 12

In re Valley Sys., Inc., Exchange Act Release No.

36,227, 60 SEC Docket 541 (Sept. 14, 1995) ......... 12

In re Westwood One, Inc., Exchange Act Release No.

33,489, 55 SEC Docket 2350 (Jan. 19, 1994) ........ 12

Management’s Discussion and Analysis, Selected

Financial Data, and Supplementary Financial

Information,

86 Fed. Reg. 2080 (Jan. 11, 2021) ......................... 14

Remarks of David S. Ruder, Chairman of the U.S.

Securities and Exchange Commission, “The

Evolution of Disclosure Regulation by the

Securities and Exchange Commission”

(March 10, 1988) ...................................................... 6

iv

SEC Guidance Regarding Management’s Discussion

& Analysis of Financial Conditions & Results of

Operations, Exchange Act Release No. 26831,

54 Fed. Reg. 22,427 (May 24, 1989) ...................... 14

Securities Act Release No. 6231,

45 Fed. Reg. 63630 (Sept. 2, 1980) ........................ 12

Securities Act Release No. 6835,

54 Fed. Reg. 22427 (May 18, 1989) ....................... 10

OTHER AUTHORITIES

A.C. Pritchard, The SEC at 70: Time for Retirement?,

80 Notre Dame L. Rev. 1073 (2005) ...................... 24

Allison Grey Anderson, The Disclosure Process in

Federal Securities Regulation: A Brief Review, 25

Hastings L.J. 311 (1974) .......................................... 6

Black's Law Dictionary, Material (11th ed. 2019) ... 15

Br. of SIFMA, et al..................................................... 15

Br. of Society of Corporate Governance .................... 15

Br. of Washington Legal Foundation........................ 15

Brief of the Securities Industry and Financial

Markets Association and the Chamber of

Commerce as Amici Curiae Supporting Petitioner,

Leidos Inc. v. Indiana Public Retirement System, et

al., 2017 WL 2859944 (June 28, 2017) .................. 22

Chair Mary Jo White, Testimony on SEC Budget,

Subcommittee on Financial Services and General

Government, Committee on Appropriations, U.S.

House of Representatives (May 7, 2013)................. 8

Chairman Christopher Cox, Statement to SEC Staff

(Aug. 4, 2005)............................................................ 8

Chamber of Commerce Letter, Re: Definition of the

Term “Fiduciary” (RIN 1210-AB32); Best Interest

Contract Exemption (ZRIN 1210-ZA25)

(Sept. 24, 2015) ....................................................... 22

v

Commissioner Allison Herren Lee, Investing in the

Public Option: Promoting Growth in Our Public

Markets, Remarks at The SEC

Speaks in 2020 (Oct. 8, 2020) .................................. 9

Commissioner Robert J. Jackson Jr., Statement on

Volcker Rule Amendments (Sept. 19, 2019) ............ 8

Denise Voigt Crawford et al., A Rule 10b-5 Private

Right of Action for MD&A Violations?,

43 No. 3 Securities Regulation Law

Journal ART 1 (2015) ................................... 8, 11, 13

Dura Pharmaceuticals v. Broudo,

2004 WL 2069564 (2005) ....................................... 24

Erica P. John Fund, Inc. v. Halliburton Co.,

2014 WL 466853 (2011) ......................................... 24

H.R. Rep. No. 1383,

73rd Cong. 2d Sess. 11 (1934).................................. 7

H.R. Conf. Rep. No. 152,

73d Cong., 1st Sess. (May 20, 1933) ...................... 19

Hillary A. Sale, Disclosure's Purpose,

107 Geo. L.J. 1045 (2019) ........................................ 7

H.R. 5480, 73d Cong., 1st Sess. (May 3, 1933) ......... 18

James D. Cox, Randall S. Thomas & Dana Kiku, SEC

Enforcement Heuristics: An Empirical Inquiry,

53 Duke L.J. 737 (2003) ................................... 24, 25

James J. Park, Rules, Principles, and the Competition

to Enforce the Securities Laws,

1 Cal. L. Rev. 115 (2012) .................................. 24, 25

Louis Brandeis, Other People’s Money and

How the Bankers Use It (1914) ................................ 6

Merck & Co., Inc., v. Reynolds,

2009 WL 3439204 (2010) ....................................... 24

Practical Law, Restructured Item 303 (MD&A) of

Regulation S-K: Chart (Jan. 11, 2021) .................. 20

S. 875 [Report No. 47],

73d Cong., 1st Sess. (Apr. 17, 1933) ...................... 18

vi

S. Rep. No. 1455,

73rd Cong. 2d Sess. 68 (1934).................................. 7

SEC Amicus Br., Basic (No. 86-279) (1986) ............. 13

Securities Industry and Financial Markets

Association, Re: Management’s Discussion and

Analysis, Selected Financial Data, and

Supplementary Financial Information

(Apr. 20, 2020) .................................................. 20, 21

Securities Investor Protection Act of 1991: Hearing

Before the Subcomm. On Securities of the Senate

Comm. On Banking, Housing and Urban Affairs,

102d Cong. 1st Sess. (1991) ................................... 24

SIFMA Comment Letter, Re: File No. S7-10-22 The

Enhancement and Standardization of ClimateRelated Disclosures for Investors

(June 17, 2022) ....................................................... 22

SIFMA Comment Letter, Request for Information

Regarding the Fiduciary Rule and Prohibited

Transaction Exemptions (Aug. 9, 2017) ................ 22

U.S. Chamber of Commerce, Re: Management’s

Discussion and Analysis, Selected Financial Data,

and Supplementary Financial Information; 17 CFR

Parts 210, 229, 239, 240 and 249; Release Nos. 3310750, 34-88093, IC-33795; File No. S7-01-20; RIN

3235-AM48 (May 4, 2020) ...................................... 21

William M. Landes & Richard A. Posner,

The Private Enforcement of Law,

4 J. Legal Stud. 1 (1975) ........................................ 25

1

INTEREST OF AMICI CURIAE 1

Amici are former commissioners and senior officials

of the U.S. Securities and Exchange Commission

(SEC) who served under both Republican and

Democratic Presidents and went on to serve as leaders

in industry and academia. Collectively, they have

decades of experience in administering and enforcing

the securities laws. Signatories include:

•

Arthur Levitt, Jr., who served as Chairman of the

SEC from 1993 to 2001, was appointed by

President William J. Clinton. He has also served as

Chairman of the American Stock Exchange and

Chairman of the New York City Economic

Development Corporation.

•

Luis A. Aguilar, who served as a Commissioner of

the SEC from 2008 to 2015, was originally

appointed by President George W. Bush, and then

reappointed by President Barack Obama. He has

been a partner at McKenna Long & Aldridge, LLP

(subsequently merged with Dentons US LLP);

Alston & Bird LLP; Kilpatrick Townsend &

Stockton LLP; and Powell Goldstein Frazer &

Murphy LLP (subsequently merged with Bryan

Cave LLP). During his time at the SEC,

Commissioner

Aguilar

represented

the

Commission as its liaison to both the North

American Securities Administrators Association

and to the Council of Securities Regulators of the

Americas. He also served as the primary sponsor of

1 Pursuant to Supreme Court Rule 37.6, counsel for amici

curiae states that no counsel for a party authored this brief in

whole or in part. No counsel or party made a monetary

contribution intended to fund the preparation or submission of

this brief, and no person other than amici or its counsel made

such a contribution.

2

the SEC’s first Investor Advisory Committee. He

began his legal career as an attorney at the SEC.

•

Bevis Longstreth, who served as a Commissioner of

the SEC from 1981 to 1984, was appointed twice by

President Ronald Reagan. He has also served as an

Adjunct Professor at Columbia University School of

Law and on various boards, including the Board of

Governors of the American Stock Exchange and the

Pension Finance Committee of The World Bank.

•

Jane B. Adams, who served as Acting Chief

Accountant of the SEC in 1998, and Deputy Chief

Accountant from 1997-2000. She advised and

represented the Chairman and Commission on

accounting, disclosures, financial reporting, and

corporate governance matters.

•

Andy Bailey, who served as Deputy Chief

Accountant of the SEC from 2004-2005. He was

also the President of the American Accounting

Association and the Head of the Department of

Accountancy at the University of Arizona, as well

as at the University of Illinois.

•

Matthew Cain, Ph.D., who served as Advisor to

Commissioner Robert J. Jackson in 2018, and

previously as a financial economist at the SEC. He

currently is a Senior Fellow at the Berkeley Center

for Law and Business.

•

Parveen P. Gupta, who served as the Academic

Accounting Fellow in the Division of Corporation

Finance of the SEC from 2006-2007. He is currently

the Clayton Distinguished Professor of Accounting

at Lehigh University and a member of the Investor

Advisory Group of the PCAOB. From 2007-2016, he

served as Chair of Lehigh's Department of

Accounting in the School of Business.

3

•

Micah Hauptman, who served as Counsel to

Commissioner Caroline A. Crenshaw from 20202022. He currently is the Director of Investor

Protection at the Consumer Federation of America.

•

Renee Jones, who served as the Director of the

Division of Corporation Finance at the SEC from

2021 to 2023, leading a team of more than 400

lawyers, accountants, and analysts. She currently

is a Professor of Law and Dr. Thomas F. Carney

Distinguished Scholar at Boston College Law

School.

•

Lynn E. Turner, who served as Chief Accountant of

the SEC from 1998-2001, and principally advised

the Chairman and Commission on accounting,

disclosures, financial reporting, and corporate

governance matters. He was appointed to the U.S.

Treasury's Committee on the Auditing Profession

and has also chaired the audit committees of

various public companies and mutual funds.

•

Thomas R. Weirich, who served as the Academic

Accounting Fellow in the Office of Chief Accountant

of the SEC from 1990-1991. He was also Chair of

the Michigan Board of Accountancy and head of the

School of Accounting at Central Michigan

University, where he is currently Professor of

Accounting.2

Together, amici have a longstanding interest in the

integrity of public markets and the deterrence of, and

legal remedies for, materially misleading statements

and omissions.

2 The views expressed by amici do not necessarily reflect the

views of the institutions with which they are or were associated,

whose names are included solely for identification purposes.

4

SUMMARY OF ARGUMENT

Truthful public disclosures are at the core of the

Securities Act of 1933 and the Securities Exchange Act

of 1934, the statutory mandates of the Securities and

Exchange Commission (SEC), and the integrity of U.S.

stock markets. These disclosures take a number of

forms for public companies, including management’s

discussion of known trends or uncertainties that are

reasonably likely to materially impact the company’s

finances, known as Item 303 of Regulation S-K. When

disclosures turn out to be untruthful, various causes of

action – most pertinently here, under Rule 10b-5 –

create civil liability in order to protect investors and

deter fraud. Over the years, these requirements and

incentives have collectively fostered integrity in U.S.

markets and helped make them the envy of the world.

In real world equity markets, retail and institutional

investors, as well as finance professionals, continue to

rely on required disclosures (including those required

by Item 303) as central sources of truthful information

when pricing and buying shares.

The case at bar involves a company asserting that

Item 303 disclosures are exempt from Rule 10b-5’s

general prohibition against materially misleading

statements and omissions. That is incorrect as a

matter of statutory construction. Moreover, in amici’s

experience, Petitioners’ arguments are inconsistent

with the SEC’s longstanding position – as reflected in

administrative proceedings, sanctions, settlements,

and federal cases.

The Commission has long underscored the

importance of accurate, material disclosures under

Item 303. Failure to comply with Item 303 by omitting

material information is prohibited under Rule 10b-5.

Petitioners seek to sidestep this logical consequence by

5

raising the specter of over-disclosure. But the SEC has

repeatedly highlighted that only material items can go

into Management's Discussion and Analysis (MD&A)

– and expressly condemned unnecessary or duplicative

disclosures precisely because they frustrate investor

understanding.

Furthermore, this Court should treat with

skepticism the parade of horribles Petitioners warn of

today. In a recent SEC rulemaking that clarified

aspects of Item 303, Petitioners’ leading amici (SIFMA

and the Chamber of Commerce) largely supported the

rule changes. Moreover, their comment letters were

noticeably silent about the risk of litigation or an

onslaught of 10b-5 claims. Those same amici filed a

comparable amicus brief in Leidos in 2017 (just two

years earlier), and surely were aware of factors

bearing upon litigation risks related to Item 303. Such

inconsistencies should give this Court pause. If

Petitioners’ amici have unearthed new concerns about

the scope of Item 303, then the appropriate forum to

address them would be a formal rulemaking process –

not a cramped reinterpretation of securities law.

Lastly, amici respectfully urge this Court to consider

the ways in which Section 10(b) and Rule 10b-5 remain

significant tools for private litigants and public

officials alike. The availability of private enforcement

through civil litigation is a critical supplement to SEC

enforcement efforts, particularly in light of the SEC’s

significant resource constraints.

ARGUMENT

Item 303 is an important part of a broader disclosure

framework that has long undergirded federal

securities laws. The Securities Act of 1933 and the

Securities Exchange Act of 1934 “were enacted

primarily to prevent the recurrence of those abuses . .

6

. responsible for the October 1929 stock market crash

and [] depression.” Allison Grey Anderson, The

Disclosure Process in Federal Securities Regulation: A

Brief Review, 25 Hastings L.J. 311, 315-16 (1974)

(citations omitted). The “overriding concern of

Congress in passing the legislation was to provide

protection for small investors, many of whom had lost

their savings by investing in the securities markets in

the late twenties and early thirties.” Id.3

To this day, markets and investors rely on company

disclosures when pricing and buying shares –

including disclosures about known trends and

uncertainties that would be reasonably likely to have

a material effect on the registrant’s future results or

financial condition, as required by Item 303. “Directly

or indirectly, millions of financial professionals,

institutional investors, and small investors depend on

the quality, timeliness, and reliability of the disclosure

mandated by the Federal securities laws.” Remarks of

David S. Ruder, Chairman of the U.S. Securities and

Exchange Commission, The Evolution of Disclosure

Regulation by the Securities and Exchange

3 “The choice of disclosure as the primary means of policing the

securities industry reflected the influence . . . of Louis D.

Brandeis,” who “had argued persuasively that publicity was the

most effective means of . . . curtailing self-dealing and conflicts of

interest.” Id. at 318-319 (citing Louis Brandeis, Other People’s

Money and How the Bankers Use It 99-105 (1914)). “Moreover,

disclosure could [deter both illegal and unethical conduct] with a

minimum of government intervention . . . .” Id. at 319 (citations

omitted). Accord Anderson, supra, at 319 (“Roosevelt and his

advisers, believing that the nation’s economic recovery depended

on a revival of confidence in, and within, the private sector, saw

the immediate goal of financial reform as the restoration of the

public’s confidence in the securities markets.”); id. at 319-320

(“the financial community generally considered a disclosure

statute acceptable.”) (citations omitted).

7

Commission at 2 (March 10, 1988). This Court has

recognized that if “investors cannot rely upon the

accuracy and completeness of issuer statements, they

will be less likely to invest, thereby reducing the

liquidity of the securities markets to the detriment of

investors and issuers alike.” Basic Inc. v. Levinson,

485 U.S. 224, 235 n.20 (1987) (citation omitted).

Likewise, the legislative record from the 1930s reflects

that Congress recognized the importance of

disclosures for market pricing dynamics.4

This overarching logic of disclosure and private

enforcement applies squarely to Item 303:

if [a] company has had three great quarters but

knows that the bottom is about to fall out of its

business, a reasonable investor would find that

information material. Although we do not require

issuers to disclose everything, disclosures full of

gaps are useless to investors and the public and

undermine the issuer-related purposes of

disclosure.

See Hillary A. Sale, Disclosure's Purpose, 107 Geo. L.J.

1045, 1055 (2019). In today’s markets, disclosure of

trends and uncertainties are critical for high-flying

stocks that are trading at large multiples of annual

earnings (e.g., due to momentum or assumptions about

global developments). See also Denise Voigt Crawford

4 See H.R. Rep. No. 1383, 73rd Cong. 2d Sess. 11 (1934)

(although “[t]he disclosure of information materially important to

investors may not instantaneously be reflected in market value, .

. . truth does find relatively quick acceptance on the market.”); S.

Rep. No. 1455, 73rd Cong. 2d Sess. 68 (1934) (“Insofar as the

judgment of either [buyer or seller] is warped by false, inaccurate,

or incomplete information regarding the corporation, the market

price fails to reflect the normal operation of the law of supply and

demand.”).

8

et al., A Rule 10b-5 Private Right of Action for MD&A

Violations?, 43 No. 3 Securities Regulation Law

Journal ART 1 (2015) (“There is no reason to fear that

allowing a[] [Rule 10b-5 action to enforce the

disclosure requirements of] Item 303 [] would broaden

the pool of Rule 10b-5 plaintiffs in a negative way.

With the extensive network of judicial checks and

balances on these claims, there would not be an influx

of vexatious litigation from investors relying on

MD&A.”).

Amici’s collective experience underscores that the

robust application of Section 10(b) and Item 303

remains deeply important. As SEC commissioners and

staff have long stressed, effective disclosure

requirements are essential to making American

securities markets the envy of the world. See, e.g.,

Chair Mary Jo White, Testimony on SEC Budget,

Subcommittee on Financial Services and General

Government, Committee on Appropriations, U.S.

House

of

Representatives

(May

7,

2013),

https://www.sec.gov/news/testimony/2013ts050713mjwhtm (“The U.S. markets are the envy of

the world precisely because of the SEC’s work

effectively regulating the markets, requiring

comprehensive disclosure, and vigorously enforcing

the securities laws.”); Commissioner Robert J. Jackson

Jr., Statement on Volcker Rule Amendments (Sept. 19,

2019),

https://www.sec.gov/news/public-statement/

statement-jackson-091919 (“The benefits of investor

trust in our financial markets are hard to quantify, but

they’re doubtless a reason why our markets are the

envy of the world.”); Chairman Christopher Cox,

Statement to SEC Staff (Aug. 4, 2005),

https://www.sec.gov/news/speech/spch080405

cc.htm (“So why is it that our markets are the gold

standard? It boils down to trust. Investor confidence.

9

The integrity of the system. The world has faith in our

markets because it has faith in the integrity of the

people minding the store.”); Commissioner Allison

Herren Lee, Investing in the Public Option: Promoting

Growth in Our Public Markets, Remarks at The SEC

Speaks in 2020 (Oct. 8, 2020), https://www.sec.gov/

news/speech/lee-investing-public-option-sec-speaks100820#_ftn3 (“[T]he federal securities laws provide

robust registration and reporting requirements, which

have created a comparatively level playing field for

investors—even the smallest investors—and allowed

them to participate in returns in our public markets,

often described as the envy of the world.”). This Court

too, has confirmed that the “importance of accurate

and complete issuer disclosure to the integrity of the

securities markets cannot be overemphasized,” Basic,

485 U.S. at 235 n.12 (citation omitted).

The Court should be mindful to avoid adverse

implications for the even-handed application of federal

securities laws and for the SEC’s enforcement

capabilities. While this case directly concerns a private

litigant’s ability to sue under Section 10(b), if the

Court rules that Item 303 does not create a duty

enforceable under Rule 10b-5, then the net effect

would be to seriously undermine enforcement of Item

303 as a general matter, to the detriment of investor

protection overall.

As detailed below, the overriding importance of

accurate, material disclosures is specifically embedded

in the regulatory history of Item 303 (infra § I) and

generally served by the ability to bring private claims

(infra § II).

10

I.

THE

HISTORY

OF

ITEM

303

CONFIRMS IT IS AN ENFORCEABLE

DISCLOSURE REQUIREMENT UNDER

RULE 10b-5.

Regulation S-K Item 303, 17 C.F.R. § 229.303, sets

out certain disclosure requirements governing

“Management's Discussion and Analysis of Financial

Condition and Results of Operations” (“MD&A”).

“[T]he MD&A requirements are intended to provide in

one section of a filing, material historical and

prospective textual disclosure enabling investors and

other users to assess the financial condition and

results of operations of the registrant with particular

emphasis on the registrant’s prospects for the future.”

Commission

Statement

About

Management’s

Discussion and Analysis of Financial Condition and

Results of Operations, 67 Fed. Reg. 3746, at 3747 (Jan.

25, 2002) (“SEC’s 2002 Statement”) (citing Securities

Act Release No. 6835, 54 Fed. Reg. 22427 (May 18,

1989).

Pursuant to Item 303, “[d]isclosure is mandatory

where there is a known trend or uncertainty that is

reasonably likely to have a material effect on the

registrant’s financial condition or results of operation.”

SEC’s 2002 Statement, 67 Fed. Reg. at 3747 & n.8

(citing Securities Act Release No. 6835, 54 Fed. Reg.

22427, 22429 (May 18, 1989)).5

Thus, “[a] clear policy undergirds Item 303: giving

meaningful information to investors that is also

understandable. MD&A helps ensure investors are

5 “In contrast, optional forward-looking disclosure involves

anticipating a future trend or event or anticipating a less

predictable impact of a known event, trend, or uncertainty.” Id.

(citing Securities Act Release No. 6835, 54 Fed. Reg. 22427, 22429

(May 18, 1989)).

11

confident in the companies they choose for investment.

It also promotes a more efficient market. And it

provides a context within which investors can analyze

financial statements. For these reasons, Item 303 is

‘paramount’ and ‘generally the most important portion

of a company's disclosure.’” Crawford, supra (citing

Exchange Act Release No. 34-45149, 2001 WL

1583348, *2 (Dec. 12, 2001) (“Investors may lose

confidence in a company's management … if sudden

changes in its financial condition and results occur,

but were not preceded by disclosures . . . . “); Critical

Accounting Policies, Exchange Act Release No. 3445907, 2002 WL 970847, *2 (May 10, 2002)). The SEC

states that “[o]ne of the most important elements

necessary to an understanding of a company’s

performance, and the extent to which reported

financial information is indicative of future results, is

the discussion and analysis of known trends, demands,

commitments, events, and uncertainties.” Commission

Guidance Regarding Management's Discussion and

Analysis of Financial Condition and Results of

Operations, Release No. 33-8350, 68 Fed. Reg. 75,056

at 75,061 (Dec. 19, 2003) (“SEC’s 2003 Guidance”).

A.

The SEC’s Enduring Position is That

Violating Item 303 or Other Disclosure

Requirements Can Predicate a Rule

10b-5 Claim

The SEC has consistently made clear that a violation

of Item 303 can serve as the basis for a Rule 10b-5

action—and that, fundamentally, it would make no

sense to permit fraud by omission but not by

commission. That view is entitled to an appropriate

measure of deference. See, e.g., SEC v. Zanford, 535

U.S. 813, 819-20 (2002); Basic Inc. v. Levinson, 485

U.S. 224 (1988).

12

Since the adoption of the current MD&A framework

in the 1980s, see Securities Act Release No. 6231, 45

Fed. Reg. 63630 (Sept. 2, 1980), the SEC has instituted

administrative proceedings and imposed various

sanctions under Rule 10b-5 due to omissions from an

MD&A in violation of Item 303. See, e.g., In re Cypress

Bioscience Inc., Exchange Act Release No. 37,701, 62

SEC Docket 2286, 2292 (Sept. 19, 1996) (finding Rule

10b-5 violation based on issuer’s Form 10-Q that

included false financial statements and “failed to

disclose” information “in the MD&A section” in

violation of Item 303); In re Valley Sys., Inc., Exchange

Act Release No. 36,227, 60 SEC Docket 541, 544 (Sept.

14, 1995) (similar); In re Westwood One, Inc.,

Exchange Act Release No. 33,489, 55 SEC Docket

2350, 2359 (Jan. 19, 1994) (similar); In re Fitzpatrick,

Exchange Act Release No. 34,865, 57 SEC Docket 2178

(Oct. 20, 1994) (concluding that executives had

violated Rule 10b-5 by filing an MD&A that omitted

material information in breach of Item 303); id. at

2182-2183 (“[T]he information omitted from First

Capital Holdings’ 1990 Form 10-K was clearly

material,” and the defendants “knew or were reckless

in not knowing of the disclosure failures.”). Similarly,

the SEC’s action against an industrial equipment

company for failure to disclose material information

about a foreign subsidiary is another example of a 10b5 claim. See In re Caterpillar, Inc., SEC Accounting

and Auditing Enforcement Release No. 363, [19911995 Accounting and Auditing Enforcement Releases

Transfer Binder] Fed. Sec. L. Rep. (CCH) 73,830, at

63,055-56 (Mar. 31, 1992).

Likewise, the SEC has maintained the same position

in administrative actions that feature other disclosure

requirements. See, e.g., In re Ciro, Inc., Exchange Act

Release No. 34,767, 57 SEC Docket 1896 (Sept. 30,

13

1994) (finding a company violated Rule 10b-5 by filing

Forms 10-K that “failed to disclose that [the company’s

president and chief executive officer] had filed for

personal bankruptcy in October 1987, as required by

Item 401(f ) of Regulation S-K.”).

The SEC has long adopted the same position in

federal courts. See, e.g., SEC Amicus Br. at 7, Basic,

supra (No. 86-279) (1986) (arguing that a duty to

disclose exists for these purposes “where regulations

promulgated by the Commission require disclosure.”).

See also id. at 7 n.3 (citing 17 C.F.R. § 229.504 (1987))

(providing an example involving Item 504 of

Regulation S-K). See also SEC v. CVS Caremark Corp.,

No. 14-cv-177 (D.R.I. Apr. 8, 2014) (omission of

information required to be disclosed in prospectus

supplements); SEC v. Conaway, 698 F. Supp. 2d 771,

822 (E.D. Mich. 2010) (noting SEC’s arguments that a

company violated Rule 10b-5 by “fail[ing] to disclose in

the MD&A that [it] had experienced a material

liquidity event in the third quarter.”). Accord D. Ct.

Doc. 127, at 5, Conaway, supra (No. 05-cv-40263), 2009

WL 1719312 (arguing that “Item 303 can be the basis

for a Rule 10b-5 action” because it “provide[s] a duty to

disclose, such that liability may apply to omitted

material information if scienter exists.”).

The SEC’s position is not only abiding, it is also

sensible: “Rule 10b-5 is a good vehicle for Item 303

claims because it is so well-established. A private

cause of action under Rule 10b-5 is a ‘judicial oak

which has grown from little more than a legislative

acorn.’” Crawford, supra (quoting Blue Chip Stamps v.

Manor Drug Stores, 421 U.S. 723, 737 (1975)).

14

B.

The SEC has Stressed the Importance of

Accurate, Material Disclosures Under

Item 303, and Warned Against OverDisclosure

Decades of SEC guidance has repeatedly

underscored the significance of specific, accurate, and

material disclosures made pursuant to Item 303. Even

though the SEC designed Item 303 to be “intentionally

general, reflecting [the SEC’s] view that a flexible

approach elicits more meaningful disclosure and

avoids boilerplate discussions,”6 there is no ambiguity

in what constitutes a required disclosure under Item

303.

The SEC’s most recent amendment of Item 303,

which “reflects a standard that is consistent with

longstanding Commission guidance and . . . current

practice,” states that “[w]hen considering whether

disclosure of a known event or uncertainty is required,

the analysis is based on materiality and what would

be considered important by a reasonable investor in

making a voting or investment decision.” See

Management’s Discussion and Analysis, Selected

Financial Data, and Supplementary Financial

Information, 86 Fed. Reg. 2080, at 2093 & n.159 (Jan.

11, 2021) (“SEC’s 2021 Final Rule”).7 An analysis of

SEC Guidance Regarding Management’s Discussion &

Analysis of Financial Conditions & Results of Operations,

Exchange Act Release No. 26831, 54 Fed. Reg. 22,427, 22,436

(May 24, 1989) (“SEC’s 1989 Guidance”).

6

7 Petitioners express much ado about why Item 303 is

supposedly “incompatible with a private right of action because

its materiality standard is different from the materiality

standard this Court established for claims brought under § 10(b),”

Pet. Br. 41. But this cannot carry the day, since the word

“material” arises in different sentences, with different

prerequisites and distinct direct objects. Compare 17 C.F.R.

15

whether disclosure of a known event or uncertainty is

reasonably likely “should be made objectively and with

a view to providing investors with a clearer

understanding of the potential material consequences

of [ ] known forward-looking events or uncertainties.

Because the analysis does not call for disclosure of

immaterial or remote future events, it should not

result in voluminous disclosures or unnecessarily

speculative information.” Id. at 2093-94 (citations

omitted).

Petitioners’ amici argue that enforcement of Item

303 under Rule 10b-5 will cause issuers and/or

registrants to over-disclose. See, e.g., Br. of

Washington Legal Foundation at 23; Br. of Society of

Corporate Governance at 18; Br. of SIFMA, et al. at 16.

But throughout numerous revision to MD&A

requirements over the years, the SEC has repeatedly

underscored that only material items can go into

MD&A. Moreover, the SEC has clearly warned against

229.303(a)(1) and (3)(ii) (Item 303 requires disclosure of known

trends or uncertainties that are “reasonably likely to result in the

registrant’s liquidity increasing or decreasing in any material

way,” or that “the registrant reasonably expects will have a

material favorable or unfavorable impact on net sales or revenues

or income.”); with 17 C.F.R. § 240.10b-5(b) (Rule 10b-5 makes it

unlawful “[t]o make any untrue statement of a material fact or to

omit to state a material fact necessary in order to make the

statements made . . . not misleading.”). The term “material,”

which arises thousands of times in the portions of Federal

Register dedicated to the SEC, is obviously context-specific. See,

e.g., Black's Law Dictionary, Material (11th ed. 2019) (“2. Having

some logical connection with the consequential facts []. 3. Of such

a nature that knowledge of the item would affect a person's

decision-making; significant; essential []”). Federal Register ::

Document Search Results ‘material,’ https://www.federal

register.gov/documents/search?conditions%5Bagencies%5D%5B

%5D=securities-and-exchange-commission&conditions

%5Bterm%5D=material#.

16

over-disclosure under Item 303 – a regime under

which companies have successfully operated, with

sensible SEC (and private) enforcement, for decades.

Commission guidance expressly provides that issuers

“avoid[] unnecessary information overload . . . where

disclosure is not required and does not promote

understanding,” SEC’s 2003 Guidance, at 75,060.

“Companies must determine, based on their own

particular facts and circumstances, whether disclosure

of a particular matter is required in MD&A. However,

the effectiveness of MD&A decreases with the

accumulation of unnecessary detail or duplicative or

uninformative disclosure that obscures material

information. Id. at 75,061. Indeed, the SEC has long

provided that companies “de-emphasize (or, if

appropriate, delete) immaterial information that does

not promote understanding.” Id. at 75,059. “[T]he

discussion in MD&A should change over time to

maintain an appropriate focus on material factors” Id.

at 75,059. Practically, MD&A gives managers the

opportunity to present the company to the

marketplace through their own eyes. The SEC

operates on the presumption that managers are (or at

least strive to be) competent and rational, and that

excessively disclosing non-material information (apart

from being contrary to SEC requirements) would also,

standing alone, not generally serve managerial

interests. For all these reasons, the specter of “overdisclosure” is unwarranted.8

All told, amici’s extensive experience at the helm of

the SEC confirms a basic truism: that affirmative

8 Moreover, companies are already required to make various

disclosures in their Forms 10-K and 8-K filed with the SEC, all of

which are subject to Section 10(b) and Rule 10b-5. Yet this has

not led to a proliferation of over-disclosure, and there is no reason

to believe it would occur here either.

17

disclosure requirements (Item 303) and prohibition

against misleading omissions (under Section 10(b) and

Rule 10b-5) are naturally related in some cases. The

Commission stressed that “Companies must provide

specified material information in their MD&A, and

they must also provide other material information that

is necessary to make the required statements, in light

of the circumstances in which they are made not

misleading.” Id. at 75,060-61 & nn.32 & 33 (specifically

citing Exchange Act Rule 10b-5). Indeed, the SEC

instructs companies to evaluate even “material

information (historical or forward-looking) . . . to

determine whether it is required to be included in

MD&A, either because it falls within a specific

disclosure requirement or because its omission would

render misleading the filed document in which the

MD&A appears.” Id. at 75,060 (emphasis added).

C.

The Legislative History of Rule 10b-5

Confirms its Breadth

Petitioners seek to effectively shrink the scope of

Rule 10b-5 to become narrower than Section 11 of the

Securities Act. But that theory cannot be reconciled

with the legislative history of the Securities Act.

Specifically, Petitioners invoke Section 11 to contend

that it creates liability for omitting a material fact that

is required to be stated, whereas Rule 10b-5 does not.

Pet. Br. 25-26.

But selectively quoting Section 11 cannot obscure

the fact that Rule 10b-5 contains significant, added

language:

•

Rule 10b-5 prohibits “the use of any means or

instrumentality of interstate commerce, or of the

mails . . . [t]o make any untrue statement of a

material fact or to omit to state a material fact

necessary in order to make the statements made,

18

in the light of the circumstances under which they

were made, not misleading . . . .” 17 C.F.R. §

240.10b-5(b) (emphasis added).

•

Section 11 creates a cause of action relating to any

registration statement that “contained an untrue

statement of a material fact or omitted to state a

material fact required to be stated therein or

necessary to make the statements therein not

misleading.” 15 U.S.C. § 77k(a) (emphasis added).

On its face, Rule 10b-5 applies to a somewhat

broader range of conduct, since it covers any

communications and a variety of “circumstances,” not

only registration statements. See also Slack Techs.,

LLC v. Pirani, 598 U.S. 759, 762 (2023) (“Together, the

Securities Act of 1933 [] and the Securities Exchange

Act of 1934 [] form the backbone of American securities

law. The first is ‘narrower’ and focused ‘primarily’ on

the regulation of new offerings.”) (citations and

internal quotations omitted).

The legislative history bears this out too. An earlier,

House version of Section 17(a) of the Securities Act is

generally mirrored by Rule 10b-5. The House version

of Section 17(a) did not include the “circumstances”

language and a proposed Senate amendment

contained rather different language about omissions.

Compare H.R. 5480, 73d Cong., 1st Sess. (May 3, 1933)

with S. 875 [Report No. 47], 73d Cong., 1st Sess. (Apr.

17, 1933). The “circumstances” language appears to

have emerged from a May 1933 conference report

reconciling the House and Senate bills:

The Senate amendment imposed liability upon

persons making false and deceptive statements in

connection with the distribution or sale of a

security. The House bill made the liability depend

upon the making of untrue statements or

19

omissions to state material facts. This phrase has

been clarified in the substitute to make the

omission relate to the statements made in order

that these statements shall not be misleading,

rather than making mere omission (unless the act

expressly requires such a fact to be stated) a

ground for liability where no circumstances exist

to make the omission in itself misleading.

H.R. Conf. Rep. No. 152, 73d Cong., 1st Sess. (May 20,

1933) (emphasis added). This too, indicates that

Section 17—and by logical extension, Rule 10b-5—was

meant to cover a broader set of facts and

“circumstances” than only certain omissions in

registration statements.

Congress has repeatedly codified Rule 10b-5(b), first

in 1995 with the enactment of the Privacy Securities

Litigation Reform Act, 15 U.S.C. § 78u–4(b)(1)(B), and

again in 2002 with the Sarbanes Oxley Act, 15 U.S.C.

§ 7241(a)(2). See also Stoneridge Inv. Partners, LLC v.

Scientific-Atlanta, Inc., 552 U.S. 148, 164 (2008)

(Congress has “ratified the implied right of action”

under Rule 10b-5, recognizing it as a “prominent

feature of federal securities regulation.”).

Moreover, in light of the corporate scandals that

spurred Sarbanes Oxley, Congress chose to require

CEOs and CFOs of publicly traded companies to

personally certify in periodic filings that “based on the

officer’s knowledge, the report does not contain any

untrue statement of a material fact or omit to state a

material fact necessary in order to make the

statements made, in light of the circumstances under

which such statements were made, not misleading.” 15

U.S.C. § 7241(a)(2) (emphasis added). SEC’s final rules

made clear that CEO certification includes the

material accuracy of “financial information” which

“includes . . . management's discussion and analysis of

20

financial condition and results of operations and other

financial information in a report.” 67 FR 57276,

https://www.federalregister.gov/d/02-22572/p-93.

Industry and SEC leadership understood this

requirement to mean that a CEO must certify as to the

material accuracy of the MD&A, including trends and

other disclosures required by Item 303.

At bottom, if Congress meant to curtail Rule 10b-5

in the way Petitioners envision, then surely it would

have indicated as much – either in 1933, 1995, 2002,

or sometime in the last century. But the legislative

history and text of Rule 10b-5 indicate the opposite:

liability for material omissions should be construed

fairly broadly to encompass Item 303, which CEOs are

already required to personally certify.

D.

Petitioners’ Amici Largely Supported

Recent Revisions to Item 303 and Did

Not

Raise

Concerns

About

its

Enforcement or Breadth

Over the years, the SEC has undertaken a

deliberative process to modernize and simplify Item

303, see generally Practical Law, Restructured Item

303 (MD&A) of Regulation S-K: Chart (Jan. 11, 2021),

with considerable input from industry leaders and the

public – including several of Petitioners’ amici. These

rulemakings have been orderly and extensive.

Notably, amici in this very case, SIFMA and the

Chamber of Commerce, largely hailed the latest

changes to Item 303 as part of the SEC’s notice and

comment period in 2020. See, e.g., Securities Industry

and Financial Markets Association, Re: Management’s

Discussion and Analysis, Selected Financial Data, and

Supplementary Financial Information (Apr. 20, 2020),

https://www.sec.gov/comments/s7-01-20/s701207130286-216134.pdf (hereinafter “SIFMA Comment

21

Letter”); id. at 1 (“we support the Commission’s overall

approach”); id. at 2 (“The Proposal reflects

consideration of our and others’ suggestions, and we

are

generally

supportive

of

the

proposed

amendments”). SIFMA’s suggestions were technical

and marginal.9 Accord U.S. Chamber of Commerce,

Re: Management’s Discussion and Analysis, Selected

Financial Data, and Supplementary Financial

Information; 17 CFR Parts 210, 229, 239, 240 and 249;

Release Nos. 33-10750, 34-88093, IC-33795; File No.

S7-01-20; RIN 3235-AM48 (May 4, 2020),

https://www.sec.gov/comments/s7-01-20/s701207149390-216380.pdf (hereinafter “Chamber Comment

Letter); id. at 2 (“We generally support the proposed

amendments reflected in the Proposing Release.”); id.

at 2-3 (listing proposed amendments that the

Chamber supported).

Conspicuously, in their lengthy comment letters to

the SEC, amici did not raise grave concerns about

private litigation or claims under Section 10(b) or

otherwise suggest that the sky is falling. Indeed,

SIFMA did “urge the Commission to consider the

increased risk of Section 11 claims when crafting [a]

critical accounting estimates requirement,” SIFMA

Comment Letter, supra, at 5, and to “revisit the safe

harbor landscape as it applies to MD&A,” id. at 9, but

raised no such risks regarding Section 10(b) or about

Item 303 generally. The Chamber, too had no difficulty

9 SIFMA Comment Letter at 2 (underscoring that their “letter

[] reiterate[d] our support for certain proposals, suggest[ed] that

the Commission provide certain clarifications that we believe

would aid registrants and other offering participants in

complying with the Proposal, suggest[ed] certain modifications to

the critical accounting estimates requirement[,] and

recommend[ed] that the Commission provide explicit and robust

safe harbor protection”).

22

in raising a host of concerns about climate-related

disclosure, although it acknowledged “the Commission

did not directly solicit comments . . . on the topic,”

Chamber Comment Letter, supra at 3; id at 11-12.

Their silence is deafening for an added reason: amici

were well aware, since at least the Leidos case, about

the prospect of Rule 10b-5 claims in conjunction with

Item 303. In 2017, the Chamber and SIFMA filed a

joint amicus brief in Leidos, raising various concerns

about Item 303 as it existed at the time, and exposure

to “nuisance lawsuits,” Brief of the Securities Industry

and Financial Markets Association and the Chamber

of Commerce as Amici Curiae Supporting Petitioner,

Leidos Inc. v. Indiana Public Retirement System, et al.,

2017 WL 2859944 at 22 (June 28, 2017). But just over

two years later, when given the opportunity to weigh

in on the SEC’s 2020 rulemaking (and to actually have

done so), these litigation concerns were nowhere to be

found. Writ large, the Chamber and SIFMA are not

known to be timid about voicing their fears about

litigation risks to the SEC or other federal agencies.10

10 See, e.g., SIFMA Comment Letter, Re: File No. S7-10-22 The

Enhancement and Standardization of Climate-Related

Disclosures for Investors at 4 (June 17, 2022) (critiquing

regulation that it said would “dramatically increase litigation risk

for registrants.”), https://www.sifma.org/wp-content/uploads/

2022/06/SIFMA-Comment-Letter-Climate.pdf; SIFMA Comment

Letter, Request for Information Regarding the Fiduciary Rule and

Prohibited Transaction Exemptions at 6 (Aug. 9, 2017) (critiquing

rules as “burdensome and fraught with litigation risk”),

https://www.sifma.org/wp-content/uploads/2017/08/SIFMASubmits-Comments-to-the-DOL-on-the-RFI-Regarding-theFiduciary-Rule-and-Prohibited-Transaction-Exemptions.pdf;

Chamber of Commerce Letter, Re: Definition of the Term

“Fiduciary” (RIN 1210-AB32); Best Interest Contract Exemption

(ZRIN 1210-ZA25) (Sept. 24, 2015) at 2, 8 (discussing

“significantly increased risk of class action litigation”),

23

Having supported the recent changes to Item 303,

Petitioners’ amici’s effort to neuter the enforcement of

the same regulation should give this Court pause. If

Petitioners’ amici or other industry leaders have

newfound concerns about Item 303’s scope or

enforcement mechanisms, then a formal rulemaking

process (with a fulsome notice and comment period) is

the proper way to voice, analyze, and address those

issues. Completely eliminating Section 10(b) liability

for Item 303 omissions is a bridge too far in the

absence of such a process.

II.

PRIVATE

ENFORCEMENT

OF

SECURITIES

LAWS,

INCLUDING

SECTION 10(b), IS IMPORTANT,

UNIQUE, AND COMPLEMENTARY TO

OTHER SEC EFFORTS.

“This Court has long recognized that meritorious

private actions to enforce federal antifraud securities

laws are an essential supplement to criminal

prosecutions and civil enforcement actions brought,

respectively, by the Department of Justice and the

Securities and Exchange Commission (SEC).” Tellabs,

Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 313,

(2007) (citing Dura Pharmaceuticals, Inc. v. Broudo,

544 U.S. 336, 345 (2005); J.I. Case Co. v. Borak, 377

U.S. 426, 432 (1964)). Private securities fraud actions

provide “a most effective weapon in the enforcement”

of securities laws and are “a necessary supplement to

Commission action.” Borak, 377 U.S. at 432. See also

Bateman Eichler, Hill Richards, Inc. v. Berner, 472

U.S. 299, 310 (1985) (“repeatedly emphasiz[ing]” that

private causes of action are “most effective” and

“necessary”) (quoting Borak) (cleaned up).

https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/

rules-and-regulations/public-comments/1210-ZA25/00370.pdf.

24

The availability of private enforcement through civil

litigation, under Section 10(b) and Rule 10b-5, is a

vital complement to SEC enforcement efforts,

particularly due to the real resource constraint facing

the SEC. The Commission and its senior leadership

have repeatedly informed this Court of its view that

private actions serve an essential role, including

through its filings in Erica P. John Fund, Inc. v.

Halliburton Co., 2014 WL 466853 (2011); Merck & Co.,

Inc., v. Reynolds, 2009 WL 3439204 (2010); Tellabs,

Inc. v. Makor Issues & Rights, Ltd., 2007 WL 460606

(2007); and Dura Pharmaceuticals v. Broudo, 2004 WL

2069564 (2005). As then-Chairman Richard Breeden

explained in congressional testimony, the SEC “does

not have adequate resources to detect and prosecute

all violations of the federal securities laws,” private

actions thus “perform a critical role in preserving the

integrity of our securities markets,” and such actions

are “also necessary to compensate defrauded

investors.” Securities Investor Protection Act of 1991:

Hearing Before the Subcomm. On Securities of the

Senate Comm. On Banking, Housing and Urban

Affairs, 102d Cong. 1st Sess. 15-16 (1991).

The complementary relationship between the SEC

and private plaintiffs bears out in litigation too. “It is

telling that the SEC has consistently supported

private class actions as a necessary supplement to

public enforcement.” James J. Park, Rules, Principles,

and the Competition to Enforce the Securities Laws, 1

Cal. L. Rev. 115, 178 (2012) (citing A.C. Pritchard, The

SEC at 70: Time for Retirement?, 80 Notre Dame L.

Rev. 1073, 1085 (2005) (“With a few minor exceptions

. . . the SEC has sided with the plaintiffs”)).

Scholars of business and economics confirm that

“[s]ince the inception of the federal securities laws, the

government's broad enforcement authority has been

25

complemented by private causes of action.” James D.

Cox, Randall S. Thomas & Dana Kiku, SEC

Enforcement Heuristics: An Empirical Inquiry, 53

Duke L.J. 737, 738 (2003). Particularly so since across

the history of the SEC, in “several respects, we might

conclude that the total volume of SEC enforcement

proceedings is quite modest compared to those

possible.” Id. at 751. “The actual distribution of

judicial and administrative enforcement cases among

types of violations reflects the overriding priorities the

SEC must maintain in light of its limited resources.”

Id. Private class actions are sometimes brought in

parallel to SEC actions, which can result in greater

information sharing and recovery for shareholders

that are “statistically larger and settled more quickly.

. . .” Id. at 777. See also William M. Landes & Richard

A. Posner, The Private Enforcement of Law, 4 J. Legal

Stud. 1, 36 (1975) ("[T]he budgets of public

enforcement agencies tend to be small in relation to

the potential gains from enforcement”).

In principle and in practice, history has borne out

that having multiple enforcers of federal securities

laws leads to both constructive complementarity and

in some instances, competition. Park, supra, at 128

(summarizing the scholarship on decentralized

enforcement and noting that this “vigorous system of

enforcement . . . deters fraud and therefore contributes

to the liquidity and transparency of [American]

markets.”).

26

CONCLUSION

For the foregoing reasons, this Court should affirm.

Respectfully submitted,

DANIEL P. CHIPLOCK

LIEFF CABRASER HEIMANN

& BERNSTEIN, LLP

250 Hudson Street

New York, NY 10013

(212) 355-9500

dchiplock@lchb.com

JOHN PAUL SCHNAPPER-CASTERAS

Counsel of Record

RACHAEL R. YOCUM

SCHNAPPER-CASTERAS PLLC

1717 K Street NW, Suite 900

Washington, D.C. 20006

(202) 630-3644

jpsc@schnappercasteras.com

LAURA H. POSNER

COHEN MILSTEIN SELLERS

& TOLL PLLC

88 Pine Street, 14th Floor

New York, NY 10005

(212) 838-7797

lposner@cohenmilstein.com

CAROL V. GILDEN

COHEN MILSTEIN SELLERS

& TOLL PLLC

190 S. La Salle Street,

Suite 1705

Chicago, IL 60603

cgilden@cohenmilstein.com

Counsel for Amici Curiae

December 20, 2023