On April 12, 2024, the United States Supreme Court decided Macquarie Infrastructure Corp. v. Moab Partners, L.P., No. 22-1165, holding that an omission violates Rule 10b-5(b) only if the omission renders other affirmative statements misleading.
Macquarie Infrastructure Corporation owns a subsidiary that operates large “bulk liquid storage terminals” that store liquid commodities, including No. 6 fuel oil, which has a sulfur content around 3%. In 2016, the United Nations “capped the sulfur content of fuel oil used in shipping at 0.5% by the beginning of 2020.” Macquarie did not discuss that regulation in its public offering documents until, in February 2018, it announced that the amount of storage capacity contracted for use by its subsidiary’s customers had dropped in part due to the decline in the market for No. 6 fuel oil. Moab Partners, L.P. sued Macquarie, claiming it violated § 10(b) and Rule 10b-5(b) by failing to disclose the extent to which its subsidiary’s storage contracts were for the storage of No. 6 fuel oil. The district court dismissed Moab Partners’ complaint, but the Second Circuit reversed, reasoning that Macquarie’s omission could, standing alone, sustain a § 10(b) and Rule 10b-5(b) claim.
The Supreme Court vacated that decision and remanded for further proceedings, holding that Rule 10b-5(b) “does not proscribe pure omissions.” It reasoned that the Rule “requires disclosure of information necessary to ensure that statements already made are clear and complete.” Thus, the “Rule . . . covers half-truths, not pure omissions.” The Court stated that the “[s]tatutory context confirms what the text plainly provides,” pointing to Section 11(a) of the Securities Act of 1933, which does impose liability for pure omissions. That the language proscribing pure omissions in Section 11(a) is absent from § 10(b) and Rule 10b-5(b) confirmed the Court’s conclusion that Rule 10b-5(b) does not proscribe pure omissions.
The Court was unpersuaded by Moab’s contention that, without private liability for pure omission under Rule 10b-5(b), there will be broad immunity any time an issuer fraudulently omits information Congress and the SEC require it to disclose. In response, the Court noted that private parties could still bring claims based on omissions that create misleading half-truths, and that the SEC retained authority to prosecute violations of its regulations.
Justice Sotomayor delivered the opinion for a unanimous Court.
