The justices repeatedly wondered what kind of guideline they could craft as they confronted a wide range of hypothetical scenarios, including factory fires caused either by wiring problems or by “space junk” falling from the sky.
The high court appeared to be struggling with its options, according to attorneys who listened to the argument. “The court could issue a ruling—with a suggestion to the SEC that it issue a rule,” said Michael Canty of Labaton Keller Sucharow LLP.
The investors’ multibillion-dollar proposed class action focuses on a data-harvesting scandal involving political consulting firm Cambridge Analytica. The investors allege their stock in the company, then called Facebook, took two significant hits in the wake of that scandal.
The investors sued over 2016 Securities and Exchange Commission filings made by Facebook, including under Item 105, which calls for the disclosure of material factors that make an investment or offering “speculative or risky.”
They claimed Facebook’s risk disclosures—that data breaches and improper disclosure of user data “could harm” its reputation and negatively impact the business—were misleading because they presented the risks as hypothetical, even though company leaders allegedly knew Cambridge Analytica had accessed user data.
But according to Barber, who argued for the government, those regulations are already in place. He disagreed “that Item 105 just doesn’t ever require disclosure of past events, because what it requires disclosure of is material factors that render investment in the company risky or speculative,” he said. “And that can readily encompass past events, present conditions, and potential future events.”
