What is the half-truth doctrine in federal securities law?

When a corporation speaks through a public filing or informally, e.g., by issuing a press release, the half-truth doctrine requires the corporation to include all additional information necessary to make the statement not misleading. See 17 C.F.R. §§ 230.408, 240.12b-20 (public filings). See also Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 641 (3d Cir. 1989) (incorporating the requirement into the 10b-5 context).

The Supreme Court held in Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2000 (2016) that “half-truths—representations that state the truth only so far as it goes, while omitting crit-ical qualifying information—can be actionable misrep-resentations.”  Rule 10b-5 encompasses not only affirmative falsehoods, but also half truths: It reaches the failure “to state a material fact necessary in order to make the statements made, in the light of the circum-stances under which they were made, not misleading.” 17 C.F.R. 240.10b-5(b).

A statement violates Rule 10b-5 if it would give reasonable shareholders a “false impression” of the relevant facts. SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 862 (2d Cir. 1968).

Many cases have found that the duty to complete a half-truth exists even where the omitted information is unlawful – but uncharged – conduct. See, e.g., In re Marsh & McLennan Cos. Sec. Litig., 501 F. Supp. 2d 452, 469 (S.D.N.Y. 2006); In re Sotheby’s Holdings, Inc., No. 00 Civ. 1041(DLC), 2000 WL 1234601, at *4 (S.D.N.Y. Aug. 31, 2000); In re Par Pharm., Inc. Sec. Litig., 733 F. Supp. 668, 675 (S.D.N.Y. 1990) (“The illegality of corporate behavior is not a justification for withholding information that the corporation is otherwise obligated to disclose.”); Ballan v. Wilfred Amer. Educ. Corp., 720 F. Supp. 241, 249 (E.D.N.Y. 1989) (“The fact that a defendant’s act may be a crime does not justify its concealment.”).

Disclosures about securities fraud may qualify for an SEC whistleblower award.  For information about SEC whistleblower rewards, download our free guide SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.

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• See our column in Forbes: One Billion Reasons Why The SEC Whistleblower-Reward Program Is Effective.
• See our column in Going Concern: Sarbanes-Oxley 15 Years Later: Accountants Need to Speak Up Now More Than Ever.
• See our post in Accounting Today: Whistleblower Protections and Incentives for Auditors and Accountants.

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