BDO USA, LLP v. New England Carpenters Guaranteed Annuity and Pension Funds, et al.

Rule 10b-5 renders unlawful “any untrue statement of a material fact” made “in connection with the purchase or sale of any security.” 17 C.F.R. § 240.10b5(b). A statement is material only if it “would [be] viewed by the reasonable investor as having significantly altered the ‘total mix’ of information.” TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). The Court has long rejected “bright-line rule[s]” for the “inherently fact-specific” materiality inquiry. Basic, Inc. v. Levinson, 485 U.S. 224, 236 (1988). Petitioner BDO stated that it audited a company’s financial statements in accordance with PCAOB auditing standards. Respondents allege that this statement was false when made because BDO had not yet finished certain required procedures. But they also allege that, in keeping with the auditing standards’ remedial provisions, BDO promptly completed the procedures and concluded that its report was unaffected. The Second Circuit initially found materiality lacking, absent “any link between” the alleged misstatement and errors in the underlying financials. App., infra, 75a. But, on rehearing, the court held that no such “link” was “required”; rather, misstatements of this sort are per se material. Id. at 36a. The question presented is: Whether the materiality requirement for securities fraud liability is satisfied per se by an auditor’s statement of compliance with professional standards (as the Second Circuit held below), or whether materiality in this context requires a fact-specific analysis focused on the link between the allegedly false compliance statement and actual misstatements of financial information (as the Sixth Circuit has held).