The March 2023 decision in Forescout addressed allegations that cybersecurity company Forescout Technologies, Inc. Circuit Court of Appeals may have muddied the waters for companies drafting risk disclosures in ruling that a risk framed as a hypothetical could be insufficient if it fails to disclose a fact that suggests the risk "might" occur. However, in GlazerCapitalManagement,L.P.v.ForescoutTechnologies,Inc., 63 F.4th 747 (9th Cir.
Most courts have concluded that a hypothetical risk disclosure is only misleading or inadequate if the risk had "a near certainty" to cause financial harm or had already materialized. July 24, 2019), shareholder plaintiffs in securities class actions frequently allege that a risk disclosure in a company's SEC filing was misleading or inadequate to warn investors because it framed a risk as a hypothetical - warning of outcomes that "may" or "could" arise "if" certain events occurred - when, according to the plaintiffs, those events had already occurred or were occurring.
These required disclosures have become a prime target of securities fraud claims in recent years where already materialized risks are described in hypothetical terms.įollowing the lead of the SEC in cases like SecuritiesandExchangeCommissionv.Facebook,Inc., 2019 WL 3318599 (N.D. That is why Securities and Exchange Commission (SEC) rules require public companies to specify the material risks that make an investment in it speculative and risky.
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