SCOTUS Narrows Application of Exchange Act Rule 10b-5(b) to Half-Truths

Until last week, federal circuit courts were split on whether so-called “pure omissions” could support securities fraud claims under Securities Exchange Act Rule 10b-5(b). The implications of the split were important to plaintiffs seeking to challenge companies for allegedly failing to disclose material information on a topic in the absence of any other affirmative statements on the same topic.

On April 12, the United States Supreme Court unanimously held in Macquarie Infrastructure Corp., et al. v. Moab Partners, L.P., et al. that “pure omissions are not actionable” under Rule 10b–5(b) and that the Rule extends only to “half-truths.” In other words, to state a scienter-based fraud claim under Rule 10b-5(b), a plaintiff must establish that material information allegedly omitted made some other affirmative statement false and misleading; “Rule 10b-5(b) does not proscribe pure omissions.”