Joseph P. Hagan, et al. v. Karim Khoja

The U.S. Courts of Appeals are currently split on whether the federal securities laws impose a duty on corporate issuers to update a statement that was accurate when made but later became misleading because of subsequent events. The Seventh Circuit rejects any duty to update. Five circuits (First, Second, Third, Fifth, and Eleventh) recognize that a duty to update may exist in certain narrow circumstances, but do not require an issuer to update a statement of historical fact that was accurate when made. In its decision below, the Ninth Circuit creates a duty to update an accurate statement of historical fact when the “value” or “weight” of that statement has been “diminished” by subsequent events. See S. Ct. Rule 10(a). The question presented is: Whether the Court should resolve the current circuit split regarding a corporate issuer’s duty to update under Securities and Exchange Commission Rule 10b-5(b) and find that the Ninth Circuit erred by imposing such a duty to a statement of historical fact that was accurate when made, where the “value” or “weight” of that prior statement was later “diminished” by subsequent events.