Second Circuit Reverses Dismissal of Securities Claim Alleging Failure to Disclose SEC Investigation | Corporate Defense and Disputes

The Noto decision could affect disclosure assessments where issuers disclose an underlying accounting problem or other deficiency but are debating whether they must also disclose a pending SEC or other governmental investigation related to that specific problem.  Depending on the facts and circumstances of the particular situation, a court might hold that failure to disclose the governmental investigation makes the disclosure of the underlying problem materially misleading because nondisclosure of the investigation could cause reasonable investors to make “an overly optimistic assessment of the risk” posed by the underlying problem.

Source: Second Circuit Reverses Dismissal of Securities Claim Alleging Failure to Disclose SEC Investigation | Corporate Defense and Disputes