AN INQUIRY INTO THE PERCEPTION OF MATERIALITY AS AN ELEMENT OF SCIENTER UNDER SEC RULE 10b-5

In any private action or enforcement proceeding based on SEC Rule 10b-5 the plaintiff, including the Securities and Exchange Commission, must prove that the defendant engaged in deception or manipulation with scienter, that is, an intent to deceive (which lower courts have held encompasses reckless conduct). Where the gravamen of the claim is deception, the deception must have been material. A fact, including forward-looking information, is material if there is a substantial likelihood that a reasonable shareholder would consider the fact important in making his investment decision. This Article demonstrates that in an appropriate case an assessment of whether the defendant acted with scienter should consider whether the defendant appreciated the materiality of an omitted or misrepresented fact. As one example, an insider who traded in the securities of his employer while he was aware of nonpublic information should not be found to have acted with scienter, if, before trading, he made a good faith evaluation of that information, including (but not necessarily) consulting with counsel, and concluded that the information was not material, even though a trier of fact later found that the information was material when the trade occurred

COVID-19 and Rule 10b-5

The COVID-19 pandemic presented wide-ranging challenges for businesses. Not the least of these is compliance with federal securities laws, including the prohibition—most notably under SEC Rule 10b-5—on materially deceptive statements made to the public. Both the SEC, in its role as enforcer of the law, and private parties, seeking to represent classes of aggrieved investors, have filed complaints asserting that corporations and others have engaged in deception of investors regarding matters pertaining to COVID-19. Some of these claims relate to disclosures regarding testing kits for the virus as well as development of vaccines. Other complaints allege faulty disclosure on the effect of the pandemic on the market for a company’s products and services that are not themselves related to the pandemic, such as claims against cruise lines that suspended operations. This article presents the legal framework for claims based on Rule 10b-5, SEC guidance on how COVID-19 affects compliance with disclosure requirements for public companies, and the issues that have emerged in the claims already filed. This analysis demonstrates that almost any public reporting company faces the risk of inadequate disclosure and the temptation to withhold or misstate material facts in a time of financial stress

WHEN THE CORPORATE LUMINARY BECOMES SERIOUSLY ILL: WHEN IS A CORPORATION OBLIGATED TO DISCLOSE THAT ILLNESS AND SHOULD THE SECURITIES AND EXCHANGE COMMISSION ADOPT A RULE REQUIRING DISCLOSURE?

Recent speculation and rumors about the health of senior corporate executives of public companies (most notably Steve Jobs of Apple Inc.) and the advanced age of many leaders in the corporate community prompt a consideration of when, if at all, there must be public disclosure of the ill health of a person whose involvement in a corporation is perceived as vital to the continued financial success or independence of that company. This Article addresses the application of various disclosure requirements under the Securities Exchange Act of 1934 to facts regarding the health of a corporate luminary. An adverse development in the health of a luminary that has, or may have, an adverse material impact on the company may not trigger an immediate disclosure obligation. There are, however, numerous situations where ill health with an adverse material corporate impact may have to be disclosed. In order to avoid uncertainty in this area – since there are competing views on the application of Exchange Act disclosure principles to personal health-related facts – this Article proposes a rule for adoption by the Securities and Exchange Commission that would impose a disclosure requirement in narrow circumstances

AN INQUIRY INTO THE PERCEPTION OF MATERIALITY AS AN ELEMENT OF SCIENTER UNDER SEC RULE 10b-5

In any private action or enforcement proceeding based on SEC Rule 10b-5 the plaintiff, including the Securities and Exchange Commission, must prove that the defendant engaged in deception or manipulation with scienter, that is, an intent to deceive (which lower courts have held encompasses reckless conduct). Where the gravamen of the claim is deception, the deception must have been material. A fact, including forward-looking information, is material if there is a substantial likelihood that a reasonable shareholder would consider the fact important in making his investment decision. This Article demonstrates that in an appropriate case an assessment of whether the defendant acted with scienter should consider whether the defendant appreciated the materiality of an omitted or misrepresented fact. As one example, an insider who traded in the securities of his employer while he was aware of nonpublic information should not be found to have acted with scienter, if, before trading, he made a good faith evaluation of that information, including (but not necessarily) consulting with counsel, and concluded that the information was not material, even though a trier of fact later found that the information was material when the trade occurred

CLEANING THE MURKY SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS: AN INQUIRY INTO WHETHER ACTUAL KNOWLEDGE OF FALSITY PRECLUDES THE MEANINGFUL CAUTIONARY STATEMENT DEFENSE

Congress included a safe harbor for forward-looking statements in the 1995 Private Securities Litigation Reform Act. This affords certain issuers and other specified persons limited protection from civil liability for damages under the Securities Act of 1933 and the Securities Exchange Act of 1934 when the projections or objectives in a forward-looking statement are not realized, i.e., turn out to be false. The safe harbor contains two principal elements, in addition to protection for immaterial statements: one prong where projections are accompanied by meaningful cautionary statements, the second prong where the plaintiff fails to prove that the speaker made the statement with actual knowledge that it is false or misleading. This article reviews the legislative history of the safe harbor, the divergent lines of case law interpreting it and extensive commentary on how the safe harbor should be applied. The conclusion of this analysis is that the first prong is available as a complete defense without regard to the state of mind or intent of the speaker, so that (1) the second prong does not apply when the first prong is satisfied and (2) statements are not deemed not meaningful because a risk factor that rendered the forward-looking statement unlikely to be realized was knowingly omitted from the cautionary statements. Although there may be policy reasons why the safe harbor should have been different, this interpretation is compelled by the language of the statute and the legislative history, including the bespeaks caution line of cases on which the statutory safe harbor was based, and judicial and scholarly analyses to the contrary are flawed

Routine Laboratory Results and Thirty Day and One-Year Mortality Risk Following Hospitalization with Acute Decompensated Heart Failure

INTRODUCTION: Several blood tests are performed uniformly in patients hospitalized with acute decompensated heart failure and are predictive of the outcomes: complete blood count, electrolytes, renal function, glucose, albumin and uric acid. We sought to evaluate the relationship between routine admission laboratory tests results, patient characteristics and 30-day and one-year mortality of patients admitted for decompensated heart failure and to construct a simple mortality prediction tool. METHODS: A retrospective population based study. Data from seven tertiary hospitals on all admissions with a principal diagnosis of heart failure during the years 2002-2005 throughout Israel were captured. RESULTS: 8,246 patients were included in the study cohort. Thirty day mortality rate was 8.5% (701 patients) and one-year mortality rate was 28.7% (2,365 patients). Addition of five routine laboratory tests results (albumin, sodium, blood urea, uric acid and WBC) to a set of clinical and demographic characteristics improved c-statistics from 0.76 to 0.81 for 30-days and from 0.72 to 0.76 for one-year mortality prediction (both p-values <0.0001). Three dichotomized abnormal laboratory results with highest odds ratio for one-year mortality (hypoalbuminaemia, hyponatremia and elevated blood urea) were used to construct a simple prediction score, capable of discriminating from 1.1% to 21.4% in 30-day and from 11.6% to 55.6% in one-year mortality rates between patients with a score of 0 (1,477 patients) vs. score of 3 (544 patients). DISCUSSION: A small set of abnormal routine laboratory results upon admission can risk-stratify and independently predict 30-day and one-year mortality in patients hospitalized with acute decompensated heart failure

Histoplasma capsulatum Heat-Shock 60 Orchestrates the Adaptation of the Fungus to Temperature Stress

Heat shock proteins (Hsps) are among the most widely distributed and evolutionary conserved proteins. Hsps are essential regulators of diverse constitutive metabolic processes and are markedly upregulated during stress. A 62 kDa Hsp (Hsp60) of Histoplasma capsulatum (Hc) is an immunodominant antigen and the major surface ligand to CR3 receptors on macrophages. However little is known about the function of this protein within the fungus. We characterized Hc Hsp60-protein interactions under different temperature to gain insights of its additional functions oncell wall dynamism, heat stress and pathogenesis. We conducted co-immunoprecipitations with antibodies to Hc Hsp60 using cytoplasmic and cell wall extracts. Interacting proteins were identified by shotgun proteomics. For the cell wall, 84 common interactions were identified among the 3 growth conditions, including proteins involved in heat-shock response, sugar and amino acid/protein metabolism and cell signaling. Unique interactions were found at each temperature [30°C (81 proteins), 37°C (14) and 37/40°C (47)]. There were fewer unique interactions in cytoplasm [30°C (6), 37°C (25) and 37/40°C (39)] and four common interactions, including additional Hsps and other known virulence factors. These results show the complexity of Hsp60 function and provide insights into Hc biology, which may lead to new avenues for the management of histoplasmosis

What Mechanism Design Theorists Had to Say About Laboratory Experimentation in the Mid-1980s

Thanks to the recent studies of the history and philosophy of experimental economics, it is well known that around the early 1980s, experimental economists made a case for the legitimacy of their laboratory work by emphasizing that it was a nice and indispensable complement to mechanism design theorists' mathematical study of institutions. The present paper examines what mechanism design theorists thought of laboratory experimentation, or whether they were willing to form a coalition with experimental economists circa the mid-1980s. By exploring several dimensions of the relationship between mechanism design theory and experimental economics, the present paper shows that a close rapport had been established by the early 1980s between the representative members of the two camps, and also that mechanism design theorists were among the strongest supporters of laboratory experimentation in the economics profession in the mid-1980s

Adding 6 months of androgen deprivation therapy to postoperative radiotherapy for prostate cancer: a comparison of short-course versus no androgen deprivation therapy in the RADICALS-HD randomised controlled trial

Background Previous evidence indicates that adjuvant, short-course androgen deprivation therapy (ADT) improves metastasis-free survival when given with primary radiotherapy for intermediate-risk and high-risk localised prostate cancer. However, the value of ADT with postoperative radiotherapy after radical prostatectomy is unclear. Methods RADICALS-HD was an international randomised controlled trial to test the efficacy of ADT used in combination with postoperative radiotherapy for prostate cancer. Key eligibility criteria were indication for radiotherapy after radical prostatectomy for prostate cancer, prostate-specific antigen less than 5 ng/mL, absence of metastatic disease, and written consent. Participants were randomly assigned (1:1) to radiotherapy alone (no ADT) or radiotherapy with 6 months of ADT (short-course ADT), using monthly subcutaneous gonadotropin-releasing hormone analogue injections, daily oral bicalutamide monotherapy 150 mg, or monthly subcutaneous degarelix. Randomisation was done centrally through minimisation with a random element, stratified by Gleason score, positive margins, radiotherapy timing, planned radiotherapy schedule, and planned type of ADT, in a computerised system. The allocated treatment was not masked. The primary outcome measure was metastasis-free survival, defined as distant metastasis arising from prostate cancer or death from any cause. Standard survival analysis methods were used, accounting for randomisation stratification factors. The trial had 80% power with two-sided α of 5% to detect an absolute increase in 10-year metastasis-free survival from 80% to 86% (hazard ratio [HR] 0·67). Analyses followed the intention-to-treat principle. The trial is registered with the ISRCTN registry, ISRCTN40814031, and ClinicalTrials.gov, NCT00541047. Findings Between Nov 22, 2007, and June 29, 2015, 1480 patients (median age 66 years [IQR 61–69]) were randomly assigned to receive no ADT (n=737) or short-course ADT (n=743) in addition to postoperative radiotherapy at 121 centres in Canada, Denmark, Ireland, and the UK. With a median follow-up of 9·0 years (IQR 7·1–10·1), metastasis-free survival events were reported for 268 participants (142 in the no ADT group and 126 in the short-course ADT group; HR 0·886 [95% CI 0·688–1·140], p=0·35). 10-year metastasis-free survival was 79·2% (95% CI 75·4–82·5) in the no ADT group and 80·4% (76·6–83·6) in the short-course ADT group. Toxicity of grade 3 or higher was reported for 121 (17%) of 737 participants in the no ADT group and 100 (14%) of 743 in the short-course ADT group (p=0·15), with no treatment-related deaths. Interpretation Metastatic disease is uncommon following postoperative bed radiotherapy after radical prostatectomy. Adding 6 months of ADT to this radiotherapy did not improve metastasis-free survival compared with no ADT. These findings do not support the use of short-course ADT with postoperative radiotherapy in this patient population