18. What type of information must an issuer disclose?
Securities laws intend to protect individuals from financial loss due to a lack of understanding of the risk associated with an investment or intentional fraudulent activity by an issuer. As such, the SEC requires that anyone offering to sell securities disclose certain “material” information about the venture to prospective purchasers. The disclosure requirements vary with the type of investor and the amount and context of the security offering. Courts have held that “there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”
• Note: The “total mix” is inherently fact specific. It also raises questions about who is the reasonable investor.
• Discussion: Why do you think the law focuses on the disclosure of only material information? How do you feel about the subjective determination of what information is material?
• Practice Question: What standard will a court apply in determining whether an issuer of securities has complied with its duty of disclosure?