Keywords
securities regulation; securities disclosure; shareholder litigation; Item 105; risk disclosure; corporate risk
Abstract
The Securities and Exchange Commission (SEC) requires companies to disclose risk factors in Item 105 of Regulation S-K, which calls for “a discussion of the material factors that make an investment speculative or risky.” Whether companies incur liability for omitting or mischaracterizing risk factors in their disclosures is the subject of a three-way split between eight federal courts of appeals. The majority approach among the circuits—consisting of the U.S. Courts of Appeals for the First, Second, Third, Fifth, Tenth, and District of Columbia Circuits—imposes liability when companies omit or mischaracterize a risk factor that, at the time of disclosure, is known or virtually certain to cause business harm. The U.S. Court of Appeals for the Sixth Circuit holds that Item 105 only covers future risks and does not impose liability on companies that omit or mischaracterize actual harm as potential or hypothetical. Finally, the U.S. Court of Appeals for the Ninth Circuit’s standard imposes liability whenever a company omits or mischaracterizes a past or ongoing risk factor—regardless of the company’s knowledge of that risk’s actual or imminent harm. This Note argues that the majority of circuits’ circumstantial analysis, rather than the analyses set forth by the Sixth and Ninth Circuits, should be adopted by all federal courts. The majority’s approach to Item 105 liability is a reliable and applicable standard that properly accounts for Item 105’s purpose as a source of material risk information. Additionally, the majority’s analytical framework most appropriately balances the needs of shareholders with the realities of corporate risk.
Recommended Citation
Henry B. Blaikie,
Litigating Corporate Risk,
93 Fordham L. Rev. 2109
(2025).
Available at: https://ir.lawnet.fordham.edu/flr/vol93/iss6/5
