In the 90 years since the passage of the Securities Exchange Act, the number of ways market participants can publicly disseminate statements to investors has skyrocketed. Yet no regulator, legislator, or judge has answered a fundamental question: Should the law distinguish between a company’s statements in a tweet and in a press release? In a new article, I present an empirical analysis of 2022 10b-5 class action lawsuits and 10b-5 enforcement actions by the SEC and find that social media statements are increasingly the basis for fraud litigation. I argue, though, that there are downsides to this development and that some level of socially acceptable securities fraud should be tolerated in an information society.
In 2022, posts on X, formerly known as Twitter, were cited as containing false statements in 13 investor class actions under Rule 10b-5. One of these cases has survived a motion to dismiss based on a tweeted emoji being actionable. What’s more, two former CEOs await sentencing for securities fraud involving false tweets. In a way, social media has pushed discourse into a realm beyond literal truth, yet securities fraud polices investor speech and issuer speech no matter where it occurs, as if the speech had been vetted and analyzed beforehand.
‘Enforcement 40’ for 2020
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