Federal Courts; securities; Financial Regulation


This Note discusses a securities disclosure issue stemming from a split between the Second Circuit and the Ninth Circuit. The question presented is whether failure to comply with a disclosure requirement created by Item 303 of Regulation S-K can provide a basis for liability under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Ninth Circuit held that such violation does not provide a basis for liability. Conversely, in Stratte-McClure v. Morgan Stanley, the Second Circuit explicitly disagreed with the Ninth Circuit and concluded that this violation may serve as a basis for liability. This Note examines the rationales behind each decision, as well as the rationales behind disclosure regulations more generally, and ultimately concludes that Item 303 violations should serve as a basis for 10b-5 liability, as long as all of the remaining requirements of a 10b-5 claim are met.