Yes. “Item 303 provides a critical backstop to prevent unscrupulous issuers from exploiting the trust that reasonable investors place in submissions made in purported compliance with SEC disclosure requirements. Indeed, a partial disclosure is particularly likely to create a false impression of completeness when it is offered in an MD&A, which reasonable investors understand must disclose the information that Item 303 requires.” Solicitor’s brief in Leidos, Inc. v. Indiana Public Retirement System.
Item 303 or Regulation S-K requires issuers to disclose all known trends, events, or uncertainties that are reasonably likely to affect the issuer’s financial condition and prospects. Where an issuer files an incomplete or partial MD&A disclosure, it is likely to create a false impression of completeness because investors expect that the MD&A disclosure will be complete. In other words, a reasonable investor would understand the MD&A disclosure as implicitly representing that the issuer had disclosed all the information Item 303 requires.
To establish Section 10(b) liability for an incomplete MD&A disclosure, there is a required showing that:
- the omission was material; and
- the issuer acted with scienter.
