How Investors Can File Claims for Concealment of Material Business Trends
Federal securities regulations require publicly-traded companies to disclose information about material business trends. Specifically, of U.S. Securities and Exchange Commission (SEC) Regulation S-K requires companies to disclose any information that is, 鈥渘ecessary to an understanding of [their] financial condition, changes in financial condition and results of operations.鈥 When disclosure doesn’t occur or if the information was lacking details, losses can occur. When an investor suffers this type of loss, it’s best to consult with a concealment of material business trend lawyer.聽
What is a 鈥淢aterial Business Trend鈥 According to the SEC?
Item 303 of SEC Regulation S-K references 鈥渢rends鈥 in three separate provisions. Among other mandatory disclosures, in order to comply with Item 303, publicly-traded companies must:
- 鈥淚dentify any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the [company鈥檚] liquidity increasing or decreasing in any material way.鈥
- 鈥淒escribe any known material trends, favorable or unfavorable, in the [company鈥檚] capital resources. Indicate any reasonably likely material changes in the mix and relative cost of such resources.鈥
- 鈥淒escribe any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.鈥
Under Item 303, the 鈥渕aterial business trends鈥 that companies have a duty to disclose fall into three categories: (i) trends impacting the company鈥檚 liquidity, (ii) trends impacting the company鈥檚 capital resources, and (iii) trends impacting the company鈥檚 net operating income. As a result, some examples of potential trends that may be subject to mandatory disclosure under Item 303 include:
- A slowdown in sales
- Customers switching to competitors
- Deteriorating market conditions
What Constitutes 鈥淐oncealment鈥 of a Material Business Trend?
Since publicly-traded companies have a duty to disclose all material business trends in compliance with Item 303 of SEC Regulation S-K, failure to disclose any trend can potentially be classified as a concealment. Federal courts have found unlawful concealment in cases:
- Making disclosures that are too generic to adequately inform investors of a material business trend
- Emphasizing information about positive business trends while deemphasizing information about negative business trends
- Omitting information about material business trends
- Misrepresenting a company鈥檚 liquidity, capital resources or operating income in order to obscure evidence of a material business trend
- Altering other financial data in order to obscure evidence of a material business trend
- Failing to disclose events (such as loss of key customer contracts) that render the company鈥檚 representation of material business trends misleading
In many, but not all, cases, concealment of a material business trend in violation of Item 303 will constitute a violation of federal securities laws. For example, concealing a material business trend may violate Section 10(b) of the Securities and Exchange Act of 1934. Courts have also found concealment of material business trends to violate Sections 11 and 12(a)(2) of the Securities Act of 1933. Determining whether concealment of a material business trend gives rise to a cause of action for fraud requires a thorough assessment of the factual and legal issues involved. As a result, any investors who believe they may have claims should consult with an investor fraud attorney promptly.
How Do You Prove Concealment of a Material Business Trend?
Proving that a company has concealed information can be difficult. After all, by the nature of the violation, it involves withholding material information from investors. Since a trend can also be somewhat difficult to identify (in some cases), it can also be difficult to assess whether a company truly misled investors or circumstances changed following the publication of the company鈥檚 financial guidelines.
With all of that said, there are a variety of ways to prove that a company has concealed a material business trend. Various circumstances and events can trigger investors鈥 concerns; and, once this happens, there are ways that investors鈥 lawyers can seek to obtain additional information. Reviewing a company鈥檚 prior or subsequent disclosures may also reveal that a statement regarding a material business trend (or lack thereof) amounts to investor fraud. Due to the challenges involved in proving a cause of action for the concealment of a material business trend, investors who believe they may have claims should speak with a concealment of a material business trend lawyer as soon as possible.
A cCan Help You Pursue Your Claim
Do you have a securities fraud claim for a company鈥檚 concealment of a material business trend? To find out, schedule a free and confidential consultation at AV短视频. Call 212-742-1414 or request an appointment online to discuss your legal rights with an attorney today.聽