Section 11 of the Securities Act of 1933 imposes liability on issuers and other signatories of a registration statement that "contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading." Materiality is satisfied when a plaintiff alleges "a statement or omission that a reasonable investor would have considered significant in making investment decisions." In other words, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by a reasonable investor as having significantly altered the "total mix" of information made available.
That seems straightforward enough, but its application is anything but straightforward. A recent 2nd Circuit decision only bolsters the point, reinforcing the court's long-held view that the materiality assessments must go beyond a formulaic approach and include qualitative factors that are more difficult to measure. In Litwin v. Blackstone Group LP, the 2nd Circuit addressed whether defendant's Registration Statement and Prospectus omitted material information that it was legally required to disclose pursuant to Item 303 of the Securities and Exchange Commission's (SEC) Regulation S-K. Under Item 303, a registrant must "describe any known trends or uncertainties...that the registrant reasonably expects will have a material...unfavorable impact on...revenues or income from continuing operations."