The U.S. Supreme Court has agreed to hear a case that will determine whether shareholders have the right to sue companies for fraud when the companies fail to disclose information about trends that could impact their financial performance. This case involves a lawsuit brought by hedge fund Moab Partners against Macquarie Infrastructure.
The case centers on allegations that Macquarie failed to disclose that its revenues were at risk due to an international phase-out of high-sulfur fuel oil between 2016 and 2018. Moab Partners filed a proposed class action suit against Macquarie in 2018, claiming that the company concealed the fact that one of its subsidiaries relied on demand for storage of a type of fuel that international regulators planned to eliminate by 2020. Both companies are based in New York.
According to the lawsuit, Macquarie violated a rule set by the U.S. Securities and Exchange Commission (SEC) that requires companies to disclose known trends and uncertainties that could significantly affect their financial position.
Macquarie appealed the lower court’s decision in favor of Moab Partners, arguing that it conflicted with a previous ruling by the 9th U.S. Circuit Court of Appeals, which held that shareholders cannot sue over violations of the SEC’s disclosure rule.
Supporting Macquarie, the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association filed a brief, contending that the uncertainty surrounding this issue has led companies to make overly detailed disclosures out of fear of potential lawsuits.
Moab Partners, on the other hand, urged the Supreme Court not to take up the appeal, noting that the lawsuit contains other claims that would not be affected by the outcome of this particular issue. They also argued that similar cases are relatively rare, minimizing the potential impact of a Supreme Court ruling.
This case is scheduled to be heard in the Supreme Court’s upcoming term, which begins on Monday. It will provide important clarity on the ability of shareholders to bring lawsuits against companies for alleged violations of SEC disclosure rules.
