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

No. 22-1165

IN THE

MACQUARIE INFRASTRUCTURE CORP., ET AL.,

Petitioners,

v.

MOAB PARTNERS, L.P., ET AL., on behalf of itself and

all others similarly situated,

Respondents.

On Writ of Certiorari to the United States Court of

Appeals for the Second Circuit

BRIEF OF INSTITUTIONAL INVESTORS AS

AMICI CURIAE IN SUPPORT OF RESPONDENTS

Matthew L. Mustokoff

Jennifer L. Joost

KESSLER TOPAZ MELTZER

& CHECK, LLP

280 King of Prussia Rd.

Radnor, PA 19087

Lawrence M. Rolnick

Marc B. Kramer

Richard A. Bodnar

ROLNICK KRAMER

SADIGHI LLP

1251 Ave. of the Americas

New York, NY 10020

Kevin K. Russell

Counsel of Record

GOLDSTEIN, RUSSELL &

WOOFTER LLC

1701 Pennsylvania Ave. NW

Suite 200

Washington, DC 20012

(202) 240-8433

kr@goldsteinrussell.com

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ....................................... iii

INTEREST OF AMICI CURIAE................................. 1

SUMMARY OF ARGUMENT ..................................... 3

ARGUMENT ................................................................ 6

I.

Federal Securities Law Assures Investors

That They Can Rely On The Truth And

Completeness Of Mandatory Disclosures. ........... 6

A. Federal Securities Laws Were Enacted In

Response To The Lack Of Reliable

Investment Information. ................................ 7

B. Private Remedies For Violations Of

Federal Disclosure Obligations Are

Critical To Market Confidence In The

Disclosure Regime. ......................................... 8

II. Complete and Accurate Item 303 Disclosures

Are Vital to Institutional Investors. ................... 11

A. Item 303 Provides Unique Insight About

A Company’s Future Performance. .............. 12

B. Incomplete Item 303 Disclosures Are

Particularly Misleading. ............................... 15

III. Incomplete Item 303 Disclosures Give Rise To

Section 10(b) Liability. ........................................ 17

IV. Petitioners’ Policy Objections Are Irrelevant

And Unfounded. .................................................. 21

A. Petitioners’ Complaints About Item 303’s

Requirements Provide No Basis For Their

Proposed Limitation On Private 10(b)

Actions. .......................................................... 23

ii

B. Allowing A Private Remedy In This

Context Will Not Open The Floodgates To

Meritless Litigation. ..................................... 24

C. Amici’s Over-Disclosure Objections Are

Meritless. ....................................................... 28

D. SEC Enforcement Is Insufficient. ................ 30

CONCLUSION........................................................... 33

iii

TABLE OF AUTHORITIES

Cases

Basic Inc. v. Levinson,

485 U.S. 224 (1988) ...................................... 7, 24, 25

Chisom v. Roemer,

501 U.S. 380 (1991) ................................................ 16

Church of Scientology of Cal. v. IRS,

484 U.S. 9 (1987) .................................................... 16

CIA v. Sims,

471 U.S. 159 (1985) ................................................ 17

Ernst & Ernst v. Hochfelder,

425 U.S. 185 (1976) .................................................. 7

Ganino v. Citizens Utils. Co.,

228 F.3d 154 (2d Cir. 2000) ................................... 25

Johnson v. Wells Fargo Bank, N.A.,

744 F.3d 539 (8th Cir. 2014) .................................. 16

Leopold v. CIA,

987 F.3d 163 (D.C. Cir. 2021) ................................ 16

Lorenzo v. SEC,

139 S. Ct. 1094 (2019) .............................................. 7

Matrixx Initiatives, Inc. v. Siracusano,

563 U.S. 27 (2011) .................................................. 24

Merrill Lynch, Pierce, Fenner & Smith, Inc. v.

Dabit, 547 U.S. 71 (2006) ......................................... 9

Randall v. Loftsgaarden,

478 U.S. 647 (1986) .................................................. 9

Slack Techs., LLC v. Pirani,

598 U.S. 759 (2023) ................................................ 22

Stoneridge Inv. Partners, LLC v. ScientificAtlanta, Inc., 552 U.S. 148 (2008) ....................... 8, 9

iv

Stratte-McClure v. Morgan Stanley,

776 F.3d 94 (2d Cir. 2015) ......................... 14, 18, 24

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

551 U.S. 308 (2007) ................................ 9, 11, 22, 25

United States ex rel. Schuette v. SuperValu Inc.,

598 U.S. 739 (2023) ................................................ 25

Universal Health Svcs., Inc. v. United States,

579 U.S. 176 (2016) .......................................... 19, 20

Statutes

15 U.S.C. § 77e ............................................................. 8

15 U.S.C. § 77g ............................................................. 8

15 U.S.C. § 77k............................................................. 8

15 U.S.C. § 77l ............................................................. 8

15 U.S.C. § 77m ........................................................... 8

15 U.S.C. § 78m(a)(1)-(2) ........................................... 19

15 U.S.C. § 78r ............................................................. 8

15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(bb) ......................... 11

15 U.S.C. § 78u-4(a)(4) .............................................. 26

15 U.S.C. § 78u-4(a)(6) .............................................. 26

15 U.S.C. § 78u-4(b)(2) .............................................. 25

15 U.S.C. § 78u-4(b)(3)(B) ......................................... 26

15 U.S.C. § 78u-4(b)(4) .............................................. 26

15 U.S.C. § 78u-5(c) ................................................... 26

18 U.S.C. § 1350 ............................................... 4, 19, 20

18 U.S.C. § 7241(a)(1) ................................................ 20

Private Securities Litigation Reform Act of 1995

(PSLRA), Pub. L. No. 104-67, 109 Stat. 737

(1995) ...................................... 3, 8, 10, 11, 22, 25, 26

v

Rules

Federal Rule of Civil Procedure 9 ............................. 25

Regulations

17 C.F.R. § 229.10(a)(2) ............................................. 19

17 C.F.R. § 229.303 .................................................... 19

17 C.F.R. § 229.303(a) ........................................... 3, 13

17 C.F.R. § 229.303(a)(3)(ii) ...................................... 18

17 C.F.R. § 229.303(b) ............................................... 26

17 C.F.R. § 229.303(b)(2)(ii) ...................................... 13

17 C.F.R. § 230.175 .................................................... 26

17 C.F.R. § 240.3b–6 .................................................. 26

Business and Financial Disclosure Required by

Regulation S-K, Exchange Act Release No.

SEC Release No. 10064, 81 Fed. Reg. 23,916

(April 22, 2016) ....................................................... 22

Commission Guidance Regarding Management’s

Discussion and Analysis of Financial

Condition and Results of Operation, Exchange

Act Release No. 48960, 68 Fed. Reg. 75,056

(Dec. 19, 2003) .................................................. 13, 14

Commission Statement About Management’s

Discussion and Analysis of Financial

Condition and Results of Operations,

Exchange Act Release No. 8056, 67 Fed. Reg.

3746 (Jan. 25, 2002) ............................................... 13

Disclosure Update and Simplification, Exchange

Act Release No. 10532, 83 Fed. Reg. 50,148

(October 4, 2018) .................................................... 22

vi

Management’s Discussion and Analysis of

Financial Condition and Results of

Operations; Certain Investment Company

Disclosures, Exchange Act Release No. 6835,

54 Fed. Reg. 22,427 (May 24, 1989) ................ 14, 23

Management’s Discussion and Analysis,

Selected Financial Data, and Supplementary

Financial Information, Exchange Act Release

No. 10890, 86 Fed. Reg. 2080

(Jan. 11, 2021) .............................................. 5, 22, 23

Other Authorities

Stefan Boettrich and Svetlana Starykh, Recent

Trends in Securities Class Action Litigation:

2018 Full-Year Review (Jan. 29, 2019) ................. 26

Br. Petr., Leidos, Inc. v. Indiana Pub. Retir.

Sys., 2017 WL 2729693 (2017) .............................. 32

Cornerstone Research, Securities Class Action

Filings: 2022 Year in Review ................................. 28

Cornerstone Research, SEC Enforcement

Activity: Public Companies and

Subsidiaries ...................................................... 32, 33

A. Doyle, Silver Blaze, in The Complete

Sherlock Holmes (1927) ......................................... 16

Goldman Sachs, About US,

https://www.goldmansachs.com/about-us/ ............ 31

Doug Green, Securities Claims Based on Item

303 of Regulation S-K: It Just Doesn’t Matter

(Sep. 30, 2015) ........................................................ 27

H.R. Rep. No. 73-85 (1933) ...................................... 6, 7

H.R. Rep. No. 104-369 (1995) ................................ 9, 11

vii

https://www.morganstanley.com/im/publication/i

nsights/articles/article_marketexpectedreturn

oninvestment_en.pdf .............................................. 12

Donald C. Langevoort & G. Mitu Gulati, The

Muddled Duty to Disclose Under Rule 10b-5,

57 Vand. L. Rev. 1639 (2004)........................... 17, 18

Letter to SEC from Securities Industry and

Financial Markets Association (Apr. 28, 2020),

available at https://www.sec.gov/comments/s701-20/s70120-7130286-216134.pdf ........................ 22

Letter to SEC from U.S Chamber of Commerc’s

Center for Capital Markets Competitiveness

(May 4, 2020,

https://www.sec.gov/comments/s7-0120/s70120-7149390-216380.pdf ............................. 22

Michael J. Mauboussin and Dan Callahan,

Market-Expected Return on Investment:

Bridging Accounting and Valuation (April 14,

2021) ....................................................................... 12

Janeen McIntosh et al, Recent Trends in

Securities Class Action Litigation: 2018 FullYear Review (Jan. 24, 2023)................................... 26

NERA, Recent Trends in Securities Class Action

Litigation: 2022 Full-Year Review (Jan. 24,

2023) ....................................................................... 33

Pensions & Investments, 80% of equity market

cap held by institutions (Apr. 25, 2017),

https://www.pionline.com/article/

20170425/INTERACTIVE/170429926/80-ofequity-market-cap-held-by-institutions ................ 10

Arthur J. Radin, Have We Created Financial

Disclosure Overload?, CPA J., Nov. 2007

(2007) ...................................................................... 30

viii

Remarks By the President at Signing of H.R.

3763, 2002 WL 1751366 ......................................... 20

S. Rep. No. 104-98 (June 19, 1995) ................. 9, 10, 22

SEC, Filing Review Process,

https://www.sec.gov/divisions/corpfin/cffilingre

view ..................................................................... 6, 32

SEC, Fiscal Year 2022 Congressional Budget

Justification, Annual Performance Plan,

https://www.sec.gov/files/fy-2022congressional-budget-justification-annualperformance-plan_final.pdf ................................... 31

U.S. Inflation Calculator,

https://www.usinflationcalculator.com ................... 6

1

INTEREST OF AMICI CURIAE1

This brief is filed by institutional investors and

their representatives that collectively invest more

than $340 billion of assets on behalf of more than two

million retirees, employees, and investors. Amici

include:

1.

Thomas P. DiNapoli, Comptroller of the State

of New York, as Trustee of the New York

State Common Retirement Fund ($248 billion

under management)

2.

Maryland State Retirement and Pension

System ($64 billion under management)

3.

Michigan Association of Public Employee

Retirement Systems (members collectively

manage $30 billion)

4.

Fire and Police Pension Association of

Colorado ($7.4 billion under management)

5.

Louisiana Sheriffs’ Pension & Relief Fund

($4.5 billion under management)

6.

Oklahoma Firefighters Pension & Retirement

System ($3.5 billion under management)

7.

Louisiana Municipal Police Employees’

Retirement System ($2.6 billion under

management)

8.

Discovery Capital Management ($2.5 billion

under management)

1 No counsel for petitioners or respondents authored any part

of this brief, and no person other than amicus curiae or its counsel

made any monetary contribution to the preparation or

submission of this brief.

2

9.

City of Miami Firefighters’ and Police

Officers’ Retirement Trust ($1.5 billion under

management)

10. City of Miami General Employees’ &

Sanitation Employees’ Retirement Trust

($780 million under management)

11. Ironsides Asset Advisors ($750 million under

management)

12. Sandalwood Securities ($750 million under

management)

13. Employee Retirement System of the City of

Providence ($400 million under management)

14. The Association of Benefit Administrators

Amici have a vital interest both in ensuring an

effective private remedy for deceptive practices that

injure investors and in avoiding the devaluation of the

companies they invest in through meritless securities

litigation. In this case, amici believe that Congress

struck the appropriate balance by ratifying a private

right of action for investors injured by misleading

omissions from Item 303 disclosures, while protecting

against unwarranted litigation through a variety of

important procedural requirements and limitations in

the Private Securities Litigation Reform Act of 1995

(PSLRA), Pub. L. No. 104-67, 109 Stat. 737 (1995).

3

SUMMARY OF ARGUMENT

Federal securities laws were enacted to provide

investors confidence in our capital markets by

ensuring them access to accurate information

essential to the valuation of a company’s shares.

Congress thus imposed on issuers a variety of

disclosure obligations and instructed the Securities

and Exchange Commission (“SEC”) to develop

additional requirements. Congress and this Court

have recognized that providing a private right of

action to those injured by material violations of those

disclosure obligations is essential to the proper

functioning of the legal regime and our financial

markets.

Amici institutional investors, their investment

advisors, and investment professionals generally, rely

heavily not only on the accuracy of the information

disclosed under this regime, but also on the

completeness of those disclosures.

Item 303

disclosures are particularly important.

Most

information provided under federal securities law is

backward-looking. That information is important, but

stock valuations are principally based on a prediction

of future performance. Item 303 plays an essential

role in that assessment, requiring companies to

disclose “material events and uncertainties known to

management that are reasonably likely to cause

reported financial information not to be necessarily

indicative of future operating results or of future

financial condition.” 17 C.F.R. § 229.303(a).

Incomplete Item 303 disclosures can be

exceedingly misleading, indeed even more misleading

than many outright misstatements. When an annual

report purports to comply with Item 303, investors will

4

understand the absence of any discussion of an event

or trend to indicate that management believes it is

unlikely to occur or have a material effect on the firm.

When that is not true, investors often would be better

off if the company had made no Item 303 disclosure at

all. At least then they would be on notice that they

would need to conduct an independent, comprehensive

assessment.

Such incomplete disclosures are actionable under

Section 10(b). Contrary to petitioners’ framing, this is

not a case about pure omissions. Petitioners were not

simply silent about Item 303 or future trends and

events—they included in their annual report an

extensive discussion that would lead reasonable

investors to believe the disclosure was comprehensive

and included all that Item 303 requires. Moreover, as

required by 18 U.S.C. § 1350, the Company’s CEO

signed a certification attesting that the report “fully

complies with the requirements of Section 13(a) or

15(d) of the Securities Exchange Act of 1934,” referring

to the provisions under which Item 303 was

promulgated. The omissions charged in this case

rendered that certification and the seemingly

complete Item 303 discussion misleading.

Petitioners’ policy objections are both beside the

point (they should be directed to the SEC or to

Congress) and unconvincing. Their complaints about

the alleged ambiguity in Item 303 are doubly

irrelevant. First, denying respondents a cause of

action in this case will do nothing to affect petitioners’

Item 303 obligations, which exist independent of any

private right of action. Second, the Item’s more

relaxed materiality requirement is entirely irrelevant

to the question before the Court because private

5

litigants must satisfy the ordinary materiality

standard applied in all Section 10(b) cases.

Petitioners’ rendition of issuers’ traditional

floodgates argument has no merit either. It ignores

that Congress responded to concerns about meritless

litigation with a variety of procedural protections,

such as heightened pleading standards, not by carving

out certain kinds of violations from the 10(b) private

right of action.

Nor can petitioners show any

concerning flood of litigation in the Second Circuit,

which has applied the rule petitioners oppose for

nearly a decade without ill effect.

There is also no basis to petitioners’ equally worn

prediction that allowing private remedies for nondisclosure will prompt harmful over-disclosure.

Petitioners ignore that the audience for these

documents is not ordinary retail investors but highly

sophisticated analysts and other investment

professionals who routinely review significant

amounts of information and are perfectly capable of

ignoring irrelevant material. Moreover, balancing the

benefits of disclosure against the costs of overdisclosure is best left in the expert hands of the SEC,

which can tailor Item 303’s requirements to reach the

optimal balance. Indeed, the SEC has been attentive

to this need, even modifying Item 303 after this suit

was filed to “provide clarity and focus to registrants as

they consider what information to discuss and

analyze.” Management’s Discussion and Analysis,

Selected Financial Data, and Supplementary

Financial Information, Exchange Act Release No.

10890 (“2021 Guidance”), 86 Fed. Reg. 2080, 2089

(Jan. 11, 2021).

6

Finally, as the SEC has frequently explained to

Congress and this Court, the Commission lacks the

resources to adequately detect and address Item 303

violations on its own. Indeed, although the SEC

endeavors to “undertake[] some level of review for each

reporting company at least once every three years,” 2

even when it scrutinizes a report, the Commission’s

staff has no way of knowing what the Item 303

discussion has failed to disclose.

ARGUMENT

I.

Federal Securities Law Assures Investors

That They Can Rely On The Truth And

Completeness Of Mandatory Disclosures.

Federal securities law arose as a response to the

worst economic crisis in the Nation’s history. In the

run up to the stock market crash of 1929, “some 50

billions of new securities were floated in the United

States.” H.R. Rep. No. 73-85, at 2 (1933). “Fully half

or $25,000,000,000 worth of securities floated during

this period have been proved to be worthless,” ibid.,

amounting to more than half a trillion dollars today

adjusted for inflation.3 Those losses were bad enough,

but the loss of investor confidence in our capital

markets was catastrophic.

Recognizing that restoration of that confidence

was essential to ending the economic crisis and to the

health of our free-market economy moving forward,

Congress enacted the Securities Act of 1933 and the

2

SEC, Filing Review Process, https://www.sec.gov/

divisions/corpfin/cffilingreview (emphasis added)

3 See

U.S. Inflation Calculator, https://www.usinflation

calculator.com (last visited December 8, 2023).

7

Securities Exchange Act of 1934. At the heart of both

laws are mandatory disclosure obligations, the private

enforceability of which is essential to their ability to

provide investors confidence in the accuracy and

completeness of those disclosures and, thereby, in our

capital markets.

A. Federal Securities Laws Were Enacted

In Response To The Lack Of Reliable

Investment Information.

Although Congress determined to root out fraud

from securities trading, it realized that prohibitions

against fraud would not be sufficient to restore and

maintain investor confidence. Equally important was

ensuring that investors had access to reliable

information regarding the securities sold on national

exchanges. See, e.g., Ernst & Ernst v. Hochfelder, 425

U.S. 185, 194-95 (1976).

A central flaw Congress identified in securities

markets leading up to the Great Depression was that

investors lacked “facts essential to estimating the

worth of any security.” H.R. Rep. No. 73-85, at 2. To

address that problem, Congress crafted new laws

designed “to substitute a philosophy of full disclosure

for the philosophy of caveat emptor.” Lorenzo v. SEC,

139 S. Ct. 1094, 1103 (2019) (citation omitted). Thus,

in drafting the Securities Exchange Act of 1934,

“Congress expressly relied on the premise that

securities markets are affected by information, and

enacted legislation to facilitate an investor’s reliance

on the integrity of those markets.” Basic Inc. v.

Levinson, 485 U.S. 224, 245-46 (1988). It did so by

imposing a variety of disclosure obligations on

companies participating on national security

exchanges and creating the SEC with a mandate to

8

elaborate on those obligations by regulation. See, e.g.,

15 U.S.C. §§ 77e, 77g, 78m.

B. Private Remedies For Violations Of

Federal Disclosure Obligations Are

Critical To Market Confidence In The

Disclosure Regime.

1. Congress recognized that investor confidence

was unlikely to be restored if federal disclosure

obligations were merely precatory. Left to their own

devices, many companies would disclose only positive

information and neglect the negative. Moreover,

disclosures are only as helpful as they are accurate.

After all, there was no shortage of disclosures in the

lead-up to the Great Depression; the problem was that

many were false or incomplete.

Congress

also

recognized

that

leaving

enforcement solely to the SEC would be grossly

insufficient. See infra § IV.D. It enacted a series of

private enforcement provisions that allowed those

injured by violations of the Act’s disclosure rules to

recover, subject to a variety of requirements and

limitations to protect defendants from meritless

litigation. See, e.g., 15 U.S.C. §§ 77k, 77l, 78r.

Whether Section 10(b) was one of those provisions

was once a subject of debate, but no more. Congress

has “ratified the implied right of action” under that

provision, recognizing it as a “prominent feature of

federal securities regulation.”

Stoneridge Inv.

Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148,

165 (2008). In enacting the PSLRA, Congress rejected

calls to eliminate the Section 10(b) private right of

action, recognizing that the “success of the U.S.

securities markets is largely the result of a high level

of investor confidence in the integrity and efficiency of

9

our markets”4 and that retaining private Section 10(b)

litigation was necessary to “protect investors and to

maintain confidence in the securities markets.” 5

“[P]rivate rights of action are not only fundamental to

the success of our securities markets,” the Senate

Report explained, “they are an essential complement

to the SEC’s own enforcement program.” S. Rep. No.

104-98, at 8 (quoting SEC Chairman Arthur Levitt).

This Court, too, has long recognized that “‘private

securities litigation [is] an indispensable tool with

which defrauded investors can recover their losses’—a

matter crucial to the integrity of domestic capital

markets.” Tellabs, Inc. v. Makor Issues & Rights, Ltd.,

551 U.S. 308, 320 n.4 (2007) (quoting Merrill Lynch,

Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 81

(2006) (citation omitted)). It is the “SEC enforcement

program and the availability of private rights of action

together [that] provide a means for defrauded

investors to recover damages and a powerful deterrent

against violations of the securities laws.” Stoneridge,

552 U.S. at 174 n.10 (quoting S. Rep. No. 104-98, at 8

(June 19, 1995)). Accordingly, this Court has taken

care not to construe the securities laws in a way that

could “seriously impair the deterrent value of private

rights of action” by diminishing “the incentives for

[securities market actors] to comply with the federal

securities laws.” Randall v. Loftsgaarden, 478 U.S.

647, 664 (1986).

2.

The availability of a private remedy is

particularly important to institutional investors, who

4 S. Rep. No. 104-98, at 8 (1995).

5 H.R. Rep. No. 104-369, at 31 (1995) (“Conf. Rep.”).

10

are entrusted with managing trillions of dollars in

assets by some of the nation’s most important

institutions. In enacting the PSLRA, Congress noted

that “[i]nstitutional investors are America’s largest

shareholders, with about $9.5 trillion in assets,

accounting for 51% of the equity market.” S. Rep. 10498, at 11. By 2017, institutional investors held more

than $21 trillion in equity, and nearly 80% of the

shares, in the nation’s largest companies. 6 Much of

that is held on behalf of pension funds covering tens of

millions of retired Americans, often on behalf of public

employers like States, local governments, and public

universities. Each year, institutional investors invest

billions of additional dollars in the U.S. capital

markets on behalf of their clients and beneficiaries.7

The integrity and success of these funds is thus a

matter imbued with the public interest.

When

violations of securities laws lead to investment losses

for institutional investors, much of the cost is borne by

their beneficiaries (i.e., individual workers saving for

retirement or existing retirees). Moreover, some state

and local governments are constitutionally obligated

to guarantee defined-benefit retirement plans. Thus,

institutional investors are vitally concerned that their

investment returns not be diminished by illegal

6 See Pensions & Investments, 80% of equity market cap held

by institutions (Apr. 25, 2017), https://www.pionline.com/article/

20170425/INTERACTIVE/170429926/80-of-equity-market-capheld-by-institutions.

7 Institutional investors are injured by securities fraud not

only when their own analysts or advisors are deceived, but when

other market participants are misled and the market price (on

whose integrity institutional and other investors rely) is

artificially altered.

11

conduct in the securities markets. At the same time,

institutional investors have a long-term investment

outlook and an interest in deterring meritless

securities litigation because such lawsuits also

diminish the value of their investments.

Congress balanced the need to ensure a private

remedy for such important institutions against

concerns about meritless private securities litigation

through provisions of the PSLRA intended to “increase

the likelihood that institutional investors . . . would

serve as lead plaintiffs.” Tellabs, 551 U.S. at 321

(2007). 8

Congress understood that because

institutional investors are injured both by securities

violations and by meritless litigation (their income

depending on the vitality of the companies they invest

in), they are “parties more likely to balance the

interests of the class with the long-term interests of

the company.” Ibid. Thus, Congress believed that

“increasing the role of institutional investors” in

securities litigation would “ultimately benefit

shareholders and assist courts.” Conf. Rep. at 34.

II. Complete and Accurate Item 303 Disclosures

Are Vital to Institutional Investors.

Institutional investors and their investment

advisors rely heavily on the insights provided by Item

303 disclosures, and on the integrity of the market

price established in reliance on those disclosures.

Indeed, Item 303 disclosures are among the most

important required by federal securities law because

8 Specifically, the PSLRA created a rebuttable presumption

that the plaintiff with “the largest financial interest in the relief

sought by the class” should be appointed as lead plaintiff. 15

U.S.C. § 78u-4(a)(3)(B)(iii)(I)(bb).

12

they provide insights into what management views as

the principal risks and challenges a company faces. By

the same token, intentionally incomplete Item 303

disclosures can be among the most damaging forms of

securities fraud.

A. Item 303 Provides Unique Insight About

A Company’s Future Performance.

Investors are predominantly concerned about

what the future holds for a company. See, e.g., Michael

J. Mauboussin and Dan Callahan, Market-Expected

Return on Investment: Bridging Accounting and

Valuation (April 14, 2021) (“A company’s stock price

reflects the expectation for future cash flows based on

past, present, and prospective investments.”). 9

Institutional investors (or their investment advisors)

therefore undertake extensive research and analysis

before investing in a particular company to try and

determine the company’s future performance. The

scope of this undertaking necessarily varies by

particular institutional investor or advisor, but

invariably includes reviewing all of a company’s SEC

and other public disclosures.

As petitioner acknowledges, most other

mandatory disclosures relate to “historical financial

information.” Petr. Br. 9. That historical information

can provide insight into a company’s future

performance. But past performance can be misleading

when there is reason to think that the conditions

giving rise to it are likely to change. For example, an

annual report’s extensive discussion of a company’s

9

Https://www.morganstanley.com/im/publication/insights/

articles/article_marketexpectedreturnoninvestment_en.pdf.

13

presently robust liquidity may mislead investors

about the company’s future prospects when

management expects that “customer demand is

reasonably likely to fluctuate in response to rapid

technological changes” or if the firm anticipates “a

debt rating downgrade.”

Commission Statement

About Management’s Discussion and Analysis of

Financial Condition and Results of Operations,

Exchange Act Release No. 8056, 67 Fed. Reg. 3746,

3748 (Jan. 25, 2002).

That is where Item 303 comes in. It requires

annual reports to include a “management discussion

and analysis” (“MD&A”) that, in narrative form,

apprises investors of “material events and

uncertainties known to management that are

reasonably likely to cause reported financial

information not to be necessarily indicative of future

operating results or of future financial condition.” 17

C.F.R. § 229.303(a). This includes “any known trends

or uncertainties that have had or that are reasonably

likely to have a material favorable or unfavorable

impact on net sales or revenues or income from

continuing operations.” Id. § 229.303(b)(2)(ii).

Thus, unlike most backward-looking disclosure

requirements, Item 303 “call[s] for companies to

provide investors” with information about their

“prospects for the future.” Commission Guidance

Regarding Management’s Discussion and Analysis of

Financial Condition and Results of Operation (“2003

Guidance”), Exchange Act Release No. 48960, 68 Fed.

Reg. 75,056, 75,059 (Dec. 19, 2003). As the Second

Circuit observed, “Item 303 disclosures ‘give investors

an opportunity to look at the registrant through the

eyes of management by providing a historical and

14

prospective analysis of the registrant’s financial

condition and results of operations.’” Stratte-McClure

v. Morgan Stanley, 776 F.3d 94, 102 (2d Cir. 2015)

(quoting Management’s Discussion and Analysis of

Financial Condition and Results of Operations;

Certain Investment Company Disclosures (“1989

Guidance”), Exchange Act Release No. 6835, 54 Fed.

Reg. 22,427, 22,428 (May 24, 1989)).

Item 303 thus provides “[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.” 2003 Guidance, at 75,061. While information

about past performance often may be reliably obtained

elsewhere and likely is already reflected in the price of

the stock, management is uniquely situated to identify

firm-specific obstacles to future performance or to

understand how generally known trends will affect a

particular firm.

This case provides an excellent example of Item

303’s unique value. All else equal, investors would

reasonably assume that recent robust demand for

Macquarie’s storage services foretold similar demand

for its services in the near- to mid-term. It would be

highly material to investors, however, if management

was aware that the regulations of an obscure

international maritime regulator could dramatically

affect demand for a particular kind of fuel oil that was

responsible for a significant share of the company’s

present revenues. See Resp. Br. 7-8. Item 303 ensures

that investors have access to that important insight so

they can assess the company’s value accurately.

15

B. Incomplete Item 303 Disclosures Are

Particularly Misleading.

When a company files an incomplete Item 303

disclosure, the risk of misleading investors is no less

than filing a disclosure that contains material

falsehoods.

Indeed, incomplete disclosures are

particularly prone to misleading investors and can be

more harmful than affirmative misstatements.

A hypothetical illustrates the point. If, for

example, a regulation required a company to disclose

all material debt obligations, investors would

reasonably assume that any debt not listed does not

exist or is not material. The incompleteness of the

disclosure would be highly misleading. Indeed, a

company’s failure to disclose a $100 million debt would

be far more misleading than disclosing the debt while

misstating its amount by $10 million.

Indeed, when companies violate their obligation to

make the complete disclosures required by law,

investors may be worse off than if there had been no

disclosure requirement at all.

If they had no

expectation that the company would make a full

disclosure of its material debts, for example, investors

would be on notice that they had to make their own

judgments about this critical financial question. They

might ask the company about its debts or conduct their

own independent investigation. But they are unlikely

to do any of those things when they believe they

already have that information because the company

was required to provide a complete list of its material

debts by law and has said nothing to indicate that it is

not complying with that obligation.

So, too, with Item 303. Institutional investors

reasonably rely not only on the accuracy of required

16

disclosures, but also on their completeness. Generally,

before investing in a company, institutional investors

or their advisors conduct their own independent

diligence, such as by questioning management,

engaging industry consultants, or speaking with

competitors. But if a company does not disclose a

material known trend or uncertainty in its Item 303

disclosure, an institutional investor will reasonably

assume that the trend or uncertainty does not exist (or

is not material). They likely will not question

management about that topic. And even if the

investor could conduct an investigation to determine

whether other material trends or uncertainties exist,

they are unlikely to do so—analysts and investors

have limited resources and understandably direct

their research to other relevant matters.

Thus, non-disclosure under Item 303 is akin to Sir

Arthur Conan Doyle’s dog that did not bark in the

night 10 —the absence of disclosure conveys a crucial

message to institutional investors, i.e., that the

company is not aware of any other material trends or

uncertainties with which investors should be

concerned. Cf. Leopold, 987 F.3d at 167 (“The absence

of particular evidence may sometimes provide clues as

important as the presence of such evidence.”); Johnson

v. Wells Fargo Bank, N.A., 744 F.3d 539, 543 & n.6 (8th

Cir. 2014) (“[A] list of what is missing is also evidence

of what is not missing”). As this Court has observed

10 See, e.g., Chisom v. Roemer, 501 U.S. 380, 396 n.23 (1991)

(“Congress’ silence in this regard can be likened to the dog that

did not bark.”) (citing A. Doyle, Silver Blaze, in The Complete

Sherlock Holmes 335 (1927)); Church of Scientology of Cal. v.

IRS, 484 U.S. 9, 17-18 (1987); Leopold v. CIA, 987 F.3d 163, 167

& n.3 (D.C. Cir. 2021).

17

in the national security context, “[w]hat may seem

trivial to the uninformed, may appear of great moment

to one who has a broad view of the scene and may put

the questioned item of information in its proper

context.” CIA v. Sims, 471 U.S. 159, 178 (1985).

Analysts and investors rely on a company’s silence

about trends and uncertainties—the dog not

barking—in constructing the mosaic of information

that they gather in deciding whether to invest in a

company.

III. Incomplete Item 303 Disclosures Give Rise

To Section 10(b) Liability.

Petitioners nonetheless claim that Congress has

provided no remedy for such deceit. For the reasons

given by respondents, they are wrong.

Amici

emphasize two important points below.

1. This is not a case about pure omissions.

Contra Petr. Br. 20-25; Washington Legal Foundation

Br. 11-13, 15, 23; Atlantic Legal Foundation Br. 21;

Society for Corporate Governance Br. 2. Petitioners

did not simply omit, for example, the entire Item 303

discussion from their annual reports. Had they done

so, investors would have been on notice that they

would be left to their own devices to figure out whether

there were regulatory or other events on the horizon

that could substantially disrupt demand for the

Company’s services. See, e.g., Donald C. Langevoort &

G. Mitu Gulati, The Muddled Duty to Disclose Under

Rule 10b-5, 57 Vand. L. Rev. 1639, 1681 (2004) (“[I]f

an issuer’s response to a[n SEC] line-item were

something along the lines of ‘we cannot provide the

information requested’ or a simple failure to file

completely, this would operate as a breach of the lineitem requirement but not be a fraud. The investor is

18

on notice of the noncompliance and would not be

misled.”).

Instead, as in every Item 303 case,

petitioners included a lengthy section in their report

labeled “Item 7.

Management’s Discussion and

Analysis of Financial Condition and Results of

Operations.” See, e.g., Macquarie Management Corp.,

Annual Report (Form 10-K) 56 (Feb. 21, 2017)

(“Macquarie 10-K).11

In that context, institutional investors—who

keenly focus on issuer’s Item 303 disclosures—would

understand petitioners to be conveying that the report

includes all the information required for an MD&A

discussion under federal law, not simply part of it. As

the Second Circuit reasoned, “[d]ue to the obligatory

nature of these regulations, a reasonable investor

would interpret the absence of an Item 303 disclosure

to imply the nonexistence of ‘known trends or

uncertainties . . . that the registrant reasonably

expects will have a material . . . unfavorable impact on

. . . revenues or income from continuing operations.’”

Stratte-McClure, 776 F.3d at 102 (quoting 17 C.F.R.

§ 229.303(a)(3)(ii)); see also Langevoort & Gulati,

supra, at 1680 (“[T]he reader of the disclosure sees

that the issuer is responding to the disclosure

obligation and is entitled to assume that the response

is not only accurate but complete as well.”).

Leaving out required information in this context

is no less misleading than when an applicant for a

mortgage fills out a form calling for a disclosure of all

credit card debt, but leaves some of her cards off the

11

Available at https://www.sec.gov/Archives/edgar/data/

1289790/000114420417010224/0001144204-17-010224index.html.

19

list. In both cases, the incomplete disclosures “fall

squarely within the rule that half-truths—

representations that state the truth only so far as it

goes, while omitting critical qualifying information—

can be actionable misrepresentations.” Universal

Health Svcs., Inc. v. United States, 579 U.S. 176, 188

(2016). The “classic example of an actionable halftruth” arises when a property seller “reveals that there

may be two new roads near a property he is selling,

but fails to disclose that a third potential road might

bisect the property.” Ibid. This case is even worse

than the classic example because the implication that

the disclosure is complete is much stronger here—by

using language that invokes the Item 303 obligation,

petitioners unambiguously convey to the reader that

they knew they had a legal obligation to completely

disclose all of the information required by the

regulation and were undertaking to fulfill it.

If that were not enough, Macquarie included a

certification from its CEO, as required by 18 U.S.C.

1350, stating that the report “fully complies with the

requirements of Section 13(a) or 15(d) of the Securities

Exchange Act of 1934, as amended.” Macquarie 10-K,

Exhibit 32.1. Section 13(a) requires issuers to “file

with the Commission . . . such information and

documents (and such copies thereof) as the

Commission shall require,” including “such annual

reports . . . as the Commission may prescribe.” 15

U.S.C. § 78m(a)(1)-(2). And Item 303 describes part of

the information the Commission requires be included

in annual reports (i.e., the MD&A section of the

report).

See 17 C.F.R. §§ 229.10(a)(2), 229.303.

Macquarie’s CEO thus expressly certified that the

reports complied with all reporting requirements,

including Item 303.

20

As required by 18 U.S.C. § 7241(a)(1), the annual

reports further included certifications that, to officials’

knowledge, the report did “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.” See, e.g.,

Macquarie 10-K, Exhibit 31.1. This language, of

course, directly tracks the words of Section 10b-5.

In signing the legislation that imposed both

certification requirements, President Bush explained

that “[t]his law says to shareholders that the financial

information you receive from a company will be true

and reliable” and that under the statute, “CEOs and

chief financial officers must personally vouch for the

truth and fairness of their companies’ disclosures.”

Remarks By the President at Signing of H.R. 3763,

2002 WL 1751366.

Petitioners note that Section 1350 “does not itself

carry a private right of action,” Br. 35 n.8, but false

certifications can be the basis of fraud actions without

the need for an express right of action to enforce the

certification requirement.

In Universal Health

Services, for example, this Court did not doubt that a

federal contractor would commit actionable fraud in

seeking payment of an invoice by falsely certifying

compliance with applicable contract requirements,

even if there were no separate right of action to enforce

the various contract rules. See 579 U.S. at 188.

2. Petitioners thus are wrong to frame this case

as asking whether Section 10(b) provides a private

right of action for violations of Item 303. The

regulation simply provides a part of the background

21

against which the company’s affirmative statements

are reasonably understood by investors.

Indeed, a defendant would actionably mislead

investors by falsely implying compliance with a

standard even if that standard were not legal and

compliance was purely voluntary. For example, an

annual report that invoked voluntary accounting

standards of a private standard-setting body would be

misleading if, in fact, it did not comply with those

standards.

For purposes of the law of fraud (and, by

implication, for claims under Section 10(b)) it makes

no difference why a company has conveyed that it is

disclosing everything required by a particular

standard; it matters only that the company has

conveyed that it is being comprehensive. So long as

that representation is conveyed, investors will be

misled by material deviations from the disclosure

standard the defendant has invoked.

IV. Petitioners’ Policy Objections Are Irrelevant

And Unfounded.

Petitioners and their amici raise a number of

policy objections, complaining that Item 303’s

materiality standard is too lax and speculating that

allowing a cause of action to investors injured by

misleadingly incomplete MD&A disclosures will

prompt a flood of meritless litigation and harmful

over-disclosure. See Petr. Br. 41-45; SIFMA Br. 15-17,

19-21; Atlantic Legal Foundation Br. 14-18; Society for

Corporate Governance Br. 11, 18-27; Washington

Legal Foundation Br. 24-27. Those arguments are

misdirected and unconvincing.

22

They are misdirected because this Court “does not

presume that any result consistent with one party’s

account of the statute’s overarching goal must be the

law.” Slack Techs., LLC v. Pirani, 598 U.S. 759, 769

(2023) (cleaned up). Petitioners’ policy arguments

simply rehash objections Congress and the SEC have

already considered and rejected. Congress responded

to complaints that private lawsuits “chill corporate

disclosure” in the PSLRA not by paring back coverage

of the Section 10(b) private right of action, but by

enacting a variety of protections against meritless

litigation.

S. Rep. 104-98 at 4-5; see, e.g., ibid.;

Tellabs, 551 U.S. at 320; infra § IV.B. The SEC has

likewise responded to calls to reduce unwarranted

disclosure burdens, including with respect to Item 303

in particular. 12 For example, in 2021, the SEC

amended Item 303 “to eliminate duplicative

disclosures and modernize and enhance MD&A

disclosures for the benefit of investors, while

simplifying compliance efforts for registrants.” 2021

Guidance, at 2080.

Those modifications were

supported by many issuers and their trade

associations, including some of petitioners’ amici.13

12

See, e.g., 2018 Guidance; Disclosure Update and

Simplification, Exchange Act Release No. 10532, 83 Fed. Reg.

50,148 (October 4, 2018); Business and Financial Disclosure

Required by Regulation S-K, Exchange Act Release No. SEC

Release No. 10064, 81 Fed. Reg. 23,916 (April 22, 2016); 2002

Guidance.

13 See, e.g., Letter to SEC from U.S Chamber of Commerc’s

Center for Capital Markets Competitiveness (May 4, 2020,

available at https://www.sec.gov/comments/s7-01-20/s701207149390-216380.pdf; Letter to SEC from Securities Industry and

23

Petitioners may think the SEC has not done

enough. But how much is too much disclosure is

ultimately a matter of judgment, as is weighing the

potential costs of over-disclosure against the benefits

of private enforcement (including deterrence and

compensation for injured investors). The SEC is the

entity within the federal government charged with

tailoring disclosure rules to strike what it deems to be

the best balance of those competing interests.

All that said, even if this Court thought it

appropriate to consider petitioners’ policy argument

itself, none has any merit.

A. Petitioners’ Complaints About Item 303’s

Requirements Provide No Basis For

Their Proposed Limitation On Private

10(b) Actions.

Petitioners and their amici complain at length

that figuring out what must be disclosed under Item

303 is complicated and uncertain. See, e.g., Petr. Br.

41-45; SIFMA Br. 7-10; Atlantic Legal Foundation Br.

9-14; Society for Corporate Governance Br. 7-14, 2731; Washington Legal Foundation Br. 22-24. They

ignore, however, the significant steps the SEC has

taken—some after this case was brought—to provide

clarity. See, e.g., 2021 Guidance, at 2089; 1989

Guidance (interpretative release providing guidance

on Item 303 requirements); id. at 22,427 & n.5

(collecting prior guidance).

Financial Markets Association (Apr. 28, 2020), available at

https://www.sec.gov/comments/s7-01-20/s70120-7130286216134.pdf.

24

More

importantly,

however,

nothing

in

petitioners’ legal arguments turns on the alleged

ambiguity in Item 303’s requirements—their

reasoning would preclude private claims relating to

even the clearest disclosure obligation (e.g., a rule

requiring disclosure of every person owning more than

10% of the company’s stock). And their proposed

solution is a poor fit for the alleged problem—as

petitioners emphasize, compliance with Item 303 is

still required, subject to enforcement action and civil

penalties by the SEC. Petr. Br. 29, 41-45.

Indeed, petitioners’ and amici’s principal

objection—that Item 303’s materiality requirement is

less demanding than what is usually required to state

a claim for fraud—applies only to cases brought by the

Commission. In a private suit, plaintiffs must satisfy

the same standard that would apply if instead of

omitting a known trend that threatened its business,

the company had acknowledged the trend but lied

about its expected impact on the firm. See, e.g.,

Stratte-McClure, 776 F.3d at 100.14

B. Allowing A Private Remedy In This

Context Will Not Open The Floodgates

To Meritless Litigation.

Nor is there any merit to petitioners’ rendition of

the classic objection that ruling against the issuer in

14 Some amici argue that even the Basic standard materiality

requirement is insufficient protection for defendants. See, e.g.,

Washington Legal Foundation Br. 25 n.14. But this Court has

repeatedly reaffirmed the standard and Congress has declined to

disturb it. See, e.g., Matrixx Initiatives, Inc. v. Siracusano, 563

U.S. 27, 39-40 & n.4 (2011).

25

this case will open the floodgates of meritless

securities litigation.

1. This Court has heard and rejected such

predictions before, noting the multiple protections

against meritless suits Congress included in the

original legislation and enhanced in the PSLRA. See,

e.g., Tellabs, 551 U.S. at 320. For example, as just

noted, private litigants must satisfy the same

materiality element required in every Section 10(b)

case, precluding suits over a defendants’ failure to

include information in the MD&A that does not alter

the “‘total mix’ of information made available” in the

market. Basic, 485 U.S. at 232 (citation omitted).

Among other things, this allows issuers to defend

against Item 303 claims by showing that the

information it allegedly failed to disclose was already

known to the market. See, e.g., Ganino v. Citizens

Utils. Co., 228 F.3d 154, 167 (2d Cir. 2000).

To the extent issuers complain that the SEC has

not provided sufficient guidance regarding what must

be included the MD&A discussion, Congress offered

substantial protection against good faith mistakes by

requiring proof of scienter. See United States ex rel.

Schuette v. SuperValu Inc., 598 U.S. 739, 750-53

(2023) (discussing common law scienter requirement’s

application to good-faith mistakes of law). The

PSLRA’s heightened pleading requirements for

scienter provide additional protection, requiring early

dismissal of cases in which plaintiffs cannot plead

facts giving rise to a “strong inference of scienter.” 15

U.S.C. § 78u-4(b)(2). At the same time, other elements

of the claim must be pleaded with particularity under

Federal Rule of Civil Procedure 9, and the PSLRA

stays discovery until the Complaint has been tested

26

against those pleading standards through a motion to

dismiss. 15 U.S.C. § 78u-4(b)(3)(B).

In addition, as the SEC has emphasized, “[a]ny

forward-looking information supplied” in an MD&A “is

expressly covered by the safe-harbor rule for

projections” in the PSLRA. 17 C.F.R. § 229.303(b)

(citing 17 CFR 230.175, 240.3b–6); see also 15 U.S.C.

§ 78u-5(c). And recoveries are subject to important

PSLRA limitations. 15 U.S.C. § 78u-4(a)(4), (a)(6),

(b)(4).

2. The experience of the Second Circuit—which

has recognized claims based on misleading Item 303

omissions since 2015—does not bear out petitioners’

dire predictions.

To start, only a fraction of securities cases filed in

the Second Circuit include Item 303 claims and that

number has remained relatively steady, even as the

overall number of securities class actions has

increased.15

15 This chart is drawn from the list of Item 303 cases in

Appendix E to the petition for certiorari and data on total

securities filings by circuit. See Janeen McIntosh et al, Recent

Trends in Securities Class Action Litigation: 2018 Full-Year

Review 5 (Jan. 24, 2023) (data on securities class action filings by

circuit for 2018-2022); Stefan Boettrich and Svetlana Starykh,

Recent Trends in Securities Class Action Litigation: 2018 FullYear Review 1 (Jan. 29, 2019) (same for 2014-2018).

27

Item 303 Filings in Second Circuit

120

100

80

60

40

20

0

2014 2015 2016 2017 2018 2019 2020 2021 2022

Item 303

Total Cases

Moreover, precluding claims based on Item 303

omissions would not eliminate any material number of

lawsuits, given that such suits invariably include

other claims and theories of liability as well. See Doug

Green, Securities Claims Based on Item 303 of

Regulation S-K: It Just Doesn’t Matter (Sep. 30, 2015)

(opining that “very rarely, if ever, would there be an

omitted fact that gives rise to an Item 303 claim

without also rendering false or misleading one or more

challenged statements”). 16 This case is a good

example: the Item 303 allegations are but one of many

claims in the case, which petitioners acknowledge will

continue regardless of how this Court resolves the

Question Presented. See BIO 9-10; Pet. 12 n.3.

Petitioners’ own list of Item 303 cases from the

Second Circuit also illustrates the robustness of the

multitude of protections defendants enjoy against

16

Https://www.dandodiscourse.com/2015/09/30/securitiesclaims-based-on-item-303-of-regulation-s-k-it-just-doesntmatter/.

28

meritless suits. See Pet. App. E. For example, of the

cases filed in 2020, more than 40% were disposed of by

successful motions to dismiss, with the Item 303

claims generally failing for inability to satisfy the

Second Circuit’s test for such omissions, for lack of

materiality, and/or failure to adequately plead

scienter. 17 That is consistent with the rate of

dismissal for securities complaints across the board.18

C. Amici’s Over-Disclosure Objections Are

Meritless.

Some of petitioners’ amici speculate that allowing

a private right of action for misleading Item 303

disclosures will lead to burdensome over disclosure.

See, e.g., Chamber Br. 11-16; Society for Corporate

Governance Br. 19-26. That prediction has no merit

either.

To start, the Court should reject the premise that

the mere prospect that private enforcement could

encourage some degree of unnecessary disclosure is a

reason to abandon the substantial countervailing

benefits private enforcement brings. As discussed, the

information required by Item 303 is of vital

importance to investors. If petitioners’ amici are right

that the level of MD&A disclosures is driven by the

availability of a private right of action, then

eliminating that action will predictably lead to

significantly less of these important insights reaching

17 Based on a review of PACER entries for cases listed in Pet.

App. E.

18 See Cornerstone Research, Securities Class Action Filings:

2022 Year in Review 22 (“Cornerstone 2022”) (“From 1997 to

2022, 46% of core federal filings were settled, 43% were

dismissed, 0.5% were remanded, and 10% are continuing.”)

29

markets. And while analysts and investors can easily

ignore excess information, they are particularly illequipped to discover Item 303 information on their

own when it is omitted.

At the same time, while amici agree that over

disclosure is harmful to some extent, petitioners’ amici

overstate its costs. The principal audience for Item

303 disclosures is not the casual citizen investor; it is

market analysts and sophisticated investors like amici

and their advisors who have the training, time, and

resources to process inevitably dense financial reports.

Such readers are not easily diverted by the inclusion

of perhaps unnecessary information and frequently

spend significant time reviewing other kinds of

documents from a variety of sources that are far less

rich in relevant information.

In any event, no one has produced any evidence

that Item 303’s MD&A requirement—much less

private litigation regarding misleading MD&A

disclosures—has inundated investors with useless

information in the Second Circuit.

Instead,

petitioners’ amici simply reprise the same generic

objections defendants raise in every case involving a

disclosure obligation. Most of their complaints, and

nearly all of their purported evidence, relates not to

Item 303 but to issuers’ general sense at times that

their overall disclosure obligations under all of federal

securities law was too burdensome. See, e.g., Chamber

Br. 13-16. Much of that evidence is badly dated, going

back a decade or more and predating the Commission’s

2016-2021 revisions to streamline the federal

disclosure regime and Item 303 in particular. See, e.g.,

Chamber Br. 13-14, 16 & n.9 (citing reports and

speeches from 2007, 2011, 2012, 2013). Little of it

30

relates to Item 303 in particular, instead taking issue

with being burdened by “boilerplate, redundant,

immaterial, irrelevant, and overly fact-packed”

disclosures. Id. at 14 (quoting Arthur J. Radin, Have

We Created Financial Disclosure Overload?, CPA J.,

Nov. 2007, at 6 (2007)). But as discussed, Item 303

provides uniquely relevant and important information

unavailable from other sources.

Even if the Court were persuaded that issuers

presently make excessive disclosures, there is no

reason to think that allowing private claims based on

misleading MD&A omissions will make matters

materially worse. Again, precluding a private action

does not change what Item 303 requires to be

disclosed. Petitioners suggest issuers will take an

excessively liberal view of those requirements to avoid

private litigation. But that argument ignores that

private litigation will continue to be governed by

traditional materiality standards. Accordingly, it is no

surprise that petitioners are unable to show, for

example, that the MD&A’s of companies potentially

subject to suit in the Second Circuit are meaningfully

different from those of other firms.

D. SEC Enforcement Is Insufficient.

Petitioners assure the Court that the SEC can

step in to fill the void if the Court eliminates private

suits for deceptive MD&A omissions. Petr. Br. 45-46.

But that is clearly wrong.

Given the size of U.S. capital markets, it is simply

impossible for any government agency to meaningfully

scrutinize regulated disclosures made to investors.

The Commission recently reported to Congress that

the “SEC is charged with overseeing approximately

$100 trillion in annual securities trading on U.S.

31

equity markets and the activities of more than 28,000

registered entities,” in addition to “24 national

securities exchanges, nine credit rating agencies, and

seven active registered clearing agencies,” as well as a

variety of other governmental and quasigovernmental entities. 19 Part of that oversight

includes “reviewing the disclosures and financial

statements of more than 7,400 reporting companies.”

Ibid.

“As our capital markets have grown, though, the

SEC has not.” Id. at 4. Today, the SEC performs its

work with about 10% of the staff of Goldman Sachs,

just one of the thousands of companies it regulates.20

Around 400 employees are charged with overseeing

tens of thousands of annual and quarterly reports filed

with the SEC, along with other duties.21

Petitioners argue that the SEC’s “informal

comment-letter process” provides adequate investor

protection. Petr. Br. 45. Not so. Although the

Commission screens filings and occasionally

comments on MD&A disclosures, it cannot and does

not review every report filed with the Commission for

compliance with mandatory disclosure rules. Contra

Petr. Br. 45. Instead, it “undertakes some level of

review of each reporting company at least once every

19 SEC, Fiscal Year 2022 Congressional Budget Justification,

Annual Performance Plan 2 (“SEC FY 2022 Report”), available at

https://www.sec.gov/files/fy-2022-congressional-budgetjustification-annual-performance-plan_final.pdf.

20 Compare id. at 4 (in 2022, SEC had fewer than 4,400 staff);

Goldman Sachs, About US (reporting nearly 40,000 employees),

https://www.goldmansachs.com/about-us/.

21 SEC FY2022 Report at 26-27.

32

three years.”22 Moreover, the SEC is in no position to

detect when a company has omitted material trends or

uncertainties from its reports. It has no way of

knowing, for example, whether new regulations from

the International Maritime Organization will reduce

the demand for No. 6 oil, or whether that will

significantly decrease demand for Macquarie’s

services.

It is understandable, then, that the SEC brings

only a handful of actions each year for violations of

disclosure rules. 23 It appears that only one or two

include alleged violations of Item 303. 24

The

infrequency of enforcement actions reflects the

Commission’s lack of resources and inherent inability

to know when a company has omitted important Item

303 information, not that it believes compliance is

adequate. Contra Petr. Br. 45-46.

Even setting aside the SEC’s inability to

adequately prevent and deter Item 303 violations on

its own, Petitioners’ argument ignores the remedial

purpose of the Section 10(b) private right of action.

Congress has recognized investor confidence in our

markets depends not only on a belief that violations

22 SEC, Filing Review Process, https://www.sec.gov/divisions/

corpfin/cffilingreview (emphasis added).

23 Cornerstone

Research, SEC Enforcement Activity: Public

Companies and Subsidiaries 2-3 (“Cornerstone FY2022 Report”)

(38% of the 67 enforcement actions brought in FY2022 involved

reporting and disclosure violations), https://www.law.nyu.edu/

sites/default/files/SEC-Enforcement-Activity-FY2022Update.pdf.

24 See Br. Petr. 43, Leidos, Inc. v. Indiana Pub. Retir. Sys., 2017

WL 2729693 (2017).

33

will be relatively infrequent, but also on the assurance

that when violations do occur and inflict substantial

losses, investors will have a realistic means for being

made whole. SEC enforcement cannot come close to

fulfilling that role. In FY2022, for example, the SEC

recovered approximately $194 million in disgorgement

remedies for injured investors. 25 In comparison,

private litigation secured $4 billion in settlements.26

CONCLUSION

For the foregoing reasons, the judgment of the

court of appeals should be affirmed.

Respectfully submitted,

Matthew L. Mustokoff

Jennifer L. Joost

KESSLER TOPAZ MELTZER

& CHECK, LLP

280 King of Prussia Rd.

Radnor, PA 19087

Lawrence M. Rolnick

Marc B. Kramer

Richard A. Bodnar

ROLNICK KRAMER

SADIGHI LLP

1251 Ave. of the Americas

New York, NY 10020

Kevin K. Russell

Counsel of Record

GOLDSTEIN, RUSSELL &

WOOFTER LLC

1701 Pennsylvania Ave. NW

Suite 200

Washington, DC 20012

(202) 240-8433

kr@goldsteinrussell.com

December 20, 2023

25 See Cornerstone FY2022 Report at 9.

26 NERA, Recent Trends in Securities Class Action Litigation:

2022 Full-Year Review 13, 20 (Jan. 24, 2023).