After hearing arguments on January 16, 2024, the Supreme Court issued its unanimous opinion on Macquarie Infrastructure Corp., et al. v. Moab Partners, LP, et al, on April 12, 2024. The Supreme Court granted certiorari to resolve “whether a failure to make a disclosure required by Item 303 can support a private claim under . . . Rule 10b-5(b) in the absence of an otherwise misleading statement.” The Court held that a manager’s pure omission cannot support an investor’s cause of action under Rule 10b-5(b). Instead, “the failure to disclose information required by Item 303 can support a Rule 10b-5(b) claim only if the omission renders affirmative statements made misleading.”

To come to this unanimous conclusion, the Court compared and contrasted SEC Rule 10b-5(b) and Section 11 of the Securities Act of 1933. Rule 10b-5(b) makes it unlawful “[t]o make any untrue statement of material fact or to omit to state a material fact necessary in order to make the statements made . . . not misleading.” (Emphasis added). Therefore, the Court held that Rule 10b-5(b) necessarily requires “identifying affirmative assertions (i.e., ‘statements made’) before determining if other facts are needed to make those statements ‘not misleading.’” Section 11, on the other hand, makes it unlawful to “omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” The Court reasoned that reading a “pure omission” into Rule 10b-5(b) would “render §11(a)’s pure omission clause superfluous by making every omission of a fact ‘required to be stated’ a misleading half-truth.”

The Court did not address whether the specific statements in this case were pure omissions or half-truths, as the Court “granted certiorari to address the . . . pure omission analysis[.]” The Court did, however, paint the following picture: “[T]he difference between a pure omission and a half-truth is the difference between a child not telling his parents he ate a whole cake and telling them he had dessert.” To be actionable under Rule 10b-5(b), the child would have to tell his shareholding parents that “the dessert was, in fact, a whole cake.”

Under the Supreme Court’s ruling, investors must be able to tie a “lie by omission” to a specific statement in order to pursue a private cause of action under Rule 10b-5(b). In the same vein, managers may think twice about addressing certain topics for the possibility of having to disclose to investors that they did, in fact, eat the whole cake.