SCOTUS, corporate disclosures and the meaning of "material" information

Yesterday, the Supreme Court heard oral arguments in the case of Matrixx Initiatives, Inc. v. Siracusano. Technically, the case is about whether a drug company must disclose reports of adverse patient reactions even though number of reports may not be statistically significant. But it was clear from the discussion (including a series of questions on Satan) that the justices were interested in the broader question of how much information needs to be disclosed. As the New York Times reports,”Much of the argument revolved around whether reasonable investors would want to know about false and outlandish assertions like the one about Satanism so long as the assertions might affect the price of securities.” (See also reports from the Washington Post, Wall Street Journal and Bloomberg.)
This question of what information is “material” to investor’s decisions is key to the issue of disclosure of intangible assets. Previously, the Supreme Court ruled that the “total mix” of available information must be considered in determining materiality. If the Court comes up with a revised test, that could alter how the SEC and lower courts view the requirement for disclosure of information on intangibles — either making it more or less likely that intangibles must be disclosed depending on how the Court rules.
I have long argued the intangible assets should be considered material. But I am not sure that I really want the courts to be determining this. I would rather see a more comprehensive set of guidelines. There are groups working on this — such as the International Integrated Reporting Committee and the Enhanced Business Reporting Consortium. Maybe a Court ruling will spur on these efforts.
A decision is expected in June – so stay tuned.

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