The U.S. Supreme Court’s unanimous ruling, penned by Justice Sonia Sotomayor, grants Macquarie Infrastructure a victory, barring shareholders from suing for fraud solely based on a breach of disclosure rules.
The case centered on allegations that Macquarie failed to divulge the risk posed by an international phasing out of high-sulfur fuel oil from 2016 to 2018.
Sotomayor clarified that while the Securities Act of 1933 prohibits companies from misleading statements, mere silence doesn’t automatically trigger the anti-fraud provision.
The ruling overturns the 2nd U.S. Circuit Court of Appeals’ decision to greenlight a class action lawsuit by Hedge fund Moab Partners, which accused Macquarie of withholding crucial information about its revenue vulnerability.
Attorney Linda Coberly, representing Macquarie, lauded the decision for offering clarity to companies, litigants, and judges navigating similar cases. However, Moab’s attorneys declined to comment on the ruling.
In the United States, publicly traded companies must adhere to federal regulations mandating various disclosures, overseen by the Securities and Exchange Commission (SEC).
Moab initiated legal action against Macquarie in 2018, alleging that the company concealed the reliance of its subsidiary’s revenue on demand for storing freighter fuel, slated for elimination by 2020. Both firms are headquartered in New York.
The lawsuit contended that Macquarie’s actions violated an SEC rule requiring companies to disclose known trends and uncertainties significantly impacting their financial status.
The Supreme Court, however, concluded that a breach of this rule alone doesn’t constitute a misleading omission under anti-fraud laws, which prohibit companies from omitting facts that could render a statement deceptive.
Rejecting Moab’s assertion that such a ruling grants companies immunity for flouting disclosure laws, the court emphasized the SEC’s authority to enforce compliance.
Macquarie’s defense rested on the argument that the decision allowing Moab’s claim to proceed contradicted a previous ruling blocking a similar lawsuit. Business groups warned that the threat of such litigation resulted in overly extensive corporate disclosures.
