Brief of Professors at Law and Business Schools As Amicus Curiae in Support of Respondents, Leidos, Inc., fka SAIC, Inc., Petitioners, v. Indiana Public Retirement System, Indiana State Teachers’ Retirement Fund, and Indiana Public Employees’ Retirement Fund, Respondents, No. 16-581 (S. Ct. Sept. 7, 2017)

59 Pages Posted: 12 Sep 2017 Last revised: 21 Nov 2017

See all articles by J. Robert Brown

J. Robert Brown

University of Denver Sturm College of Law

James D. Cox

Duke University School of Law

Joan MacLeod Heminway

University of Tennessee College of Law

Lyman Johnson

Washington and Lee University - School of Law; University of St. Thomas, St. Paul/Minneapolis, MN - School of Law

Date Written: September 7, 2017

Abstract

This Amicus Brief was filed with the U.S. Supreme Court on behalf of nearly 50 law and business faculty in the United States and Canada who have a common interest in ensuring a proper interpretation of the statutory securities regulation framework put in place by the U.S. Congress. Specifically, all amici agree that Item 303 of the Securities and Exchange Commission's Regulation S-K creates a duty to disclose for purposes of Rule 10b-5(b) under the Securities Exchange Act of 1934.

The Court’s affirmation of a duty to disclose would have little effect on existing practice. Under the current state of the law, investors can and do bring fraud claims for nondisclosure of required information by public companies. Thus, affirming the existence of a duty to disclose will not significantly alter existing practices or create a new avenue for litigants that will lead to “massive liability” or widespread enforcement of “technical reporting violations.”

At the same time, the failure to find a duty to disclose in these circumstances will hinder enforcement of the system of mandatory reporting applicable to public companies and weaken compliance. Reversal of the lower court would reduce incentives to comply with the requirements mandated by the system of periodic reporting. Enforcement under Section 10(b) of and Rule 10b-5(b) under the Securities Exchange Act of 1934 by investors in the case of nondisclosure will effectively be eliminated. Reversal would likewise reduce the tools available to the Securities and Exchange Commission to ensure compliance with the system of periodic reporting. In an environment of diminished enforcement, reporting companies could perceive their disclosure obligations less as a mandate than as a series of options. Required disclosure would more often become a matter of strategy, with issuers weighing the obligation to disclose against the likelihood of detection and the reduced risk of enforcement.

Under this approach, investors would not make investment decisions on the basis of “true and accurate corporate reporting. . . .” They would operate under the “predictable inference” that reports included the disclosure mandated by the rules and regulations of the Securities and Exchange Commission. Particularly where officers certified the accuracy and completeness of the information provided in the reports, investors would have an explicit basis for the assumption. They would therefore believe that omitted transactions, uncertainties, and trends otherwise required to be disclosed had not occurred or did not exist. Trust in the integrity of the public disclosure system would decline.

The lower court correctly recognized that the mandatory disclosure requirements contained in Item 303 gave rise to a duty to disclose and that the omission of material trends and uncertainties could mislead investors. The decision below should be affirmed.

Keywords: Securities fraud; omission; duty to disclose; Item 303; Section 10(b); Rule 10b-5

JEL Classification: K22, K43, M10

Suggested Citation

Brown, J. Robert and Cox, James D. and Heminway, Joan MacLeod and Johnson, Lyman P. Q., Brief of Professors at Law and Business Schools As Amicus Curiae in Support of Respondents, Leidos, Inc., fka SAIC, Inc., Petitioners, v. Indiana Public Retirement System, Indiana State Teachers’ Retirement Fund, and Indiana Public Employees’ Retirement Fund, Respondents, No. 16-581 (S. Ct. Sept. 7, 2017) (September 7, 2017). Duke Law School Public Law & Legal Theory Series No. 2017-60; U Denver Legal Studies Research Paper No. 17-29; Washington & Lee Legal Studies Paper No. 2017-20. Available at SSRN: https://ssrn.com/abstract=3034103 or http://dx.doi.org/10.2139/ssrn.3034103

J. Robert Brown

University of Denver Sturm College of Law ( email )

2255 E. Evans Avenue
Denver, CO 80208
United States

James D. Cox

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7056 (Phone)
919-613-7231 (Fax)

Joan MacLeod Heminway (Contact Author)

University of Tennessee College of Law ( email )

1505 West Cumberland Avenue
Knoxville, TN 37996
United States
865-974-3813 (Phone)
865-974-0681 (Fax)

Lyman P. Q. Johnson

Washington and Lee University - School of Law ( email )

Lexington, VA 24450
United States
540-458-8515 (Phone)
540-458-8488 (Fax)

University of St. Thomas, St. Paul/Minneapolis, MN - School of Law

MSL 400, 1000 La Salle Avenue
Minneapolis, MN Minnesota 55403-2005
United States

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