Two High Court Securities Cases Could Clarify Pleading Rules

In the process, the high court may resolve disagreements among different courts of appeals regarding the requirements for pleading scienter and falsity — two key elements of claims brought under Section 10(b) of the Securities Exchange Act and U.S. Securities and Exchange Commission Rule 10b-5.²

The pair of securities cases is scheduled for argument before the high court in November.

In the Facebook action, the Supreme Court is set to review a decision of the U.S. Court of Appeals for the Ninth Circuit reviving Section 10(b) claims against Facebook — now Meta Platforms Inc. — related to alleged disclosure failures surrounding Cambridge Analytica’s wrongful acquisition and use of Facebook user data.³

Specifically, the Supreme Court will examine whether risk disclosures are rendered false or misleading when they do not state that a disclosed risk has actually materialized in the past, even if that past event presents no known risk of ongoing or future business harm.⁴

Nvidia arises from a second Ninth Circuit decision involving a Section 10(b) claim against a technology company.⁵ That appeal focuses on (1) whether plaintiffs seeking to allege scienter — basically, an intent to deceive — based on internal company documents must plead the content of those documents with particularity; and (2) whether a plaintiff can adequately plead falsity by relying on an expert opinion instead of particularized factual allegations.⁶