Materiality in Securities Fraud Actions


Summary

This practice note addresses materiality in an alleged misstatement or omission claim for securities fraud under Section 10(b) of the Securities Exchange Act of 1934, as amended (Exchange Act) (15 U.S.C. § 78j), and Rule 10b-5 thereunder (17 C.F.R. § 240.10b-5). Only misrepresentations or omissions of material facts are actionable in securities fraud cases. A fact is material for securities law purposes if there is "a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." TSC Indus. v. Northway, 426 U.S. 438, 449 (1976). This note discusses the general test for determining materiality, the distinction between a misrepresentation versus an omission, potential arguments that an alleged misstatement or omission is not material, and the use of expert witness's event studies to disprove materiality.