On August 29, 2025, a divided panel of the United States Court of Appeals for the Ninth Circuit reversed and remanded in part a putative securities class action alleging that a financial technology company (the "Company") concealed material intra-quarter financial information in its IPO registration statement in violation of Sections 11, 12, and 15 of the Securities Act of 1933.Sodha v. Golubowski, No. 24-1036 (9th Cir. Aug. 29, 2025). The panel held that Item 105 of Regulation S-K ("Item 105"), which requires the disclosure of material factors that make an investment in an issuer or offering speculative or risky, applies only to prospective risks and does not require the disclosure of past events. The majority also held that the district court applied an incorrect standard to determine whether the offering materials should have included an interim disclosure of results for the quarter that closed the month before the offering and failed to fully assess plaintiffs' claim that the offering materials failed to include the information required under Item 303 of Regulation S-K ("Item 303"). In a pointed dissent, Circuit Judge Johnnie B. Rawlinson explained how the majority's reasoning could not be squared with the plain language of Item 303, which was amended in 2021, and that the Company's disclosures in any event were not misleading.
The registration statement, which was filed in July 2021, contained complete financial statements for the Company's results through the end of the first quarter of 2021 and a disclosure of expected results for the second quarter of 2021 and the beginning of the third quarter of 2021. Plaintiffs alleged that the disclosures with respect to the second quarter of 2021 were misleading despite multiple risk disclosures and warnings because the offering documents did not also include a disclosure that several financial metrics and key performance indicators allegedly declined after the end of the first quarter of 2021. Plaintiffs also alleged that the risk disclosures were misleading because the risks allegedly had already come to fruition. Plaintiffs pursued these claims under three theories: (1) the "misleading-by-omission" prong of Section 11, (2)Item 303, and (3)Item 105. The district court dismissed the complaint in its entirety.
The majority held that all of the omissions challenged in the complaint implicated the issue of whether the Company was required to disclose allegedly negative interim results even when full financial results for those quarters were not included in the offering document. Relying on the First Circuit's decision inShaw v. Digital Equip. Corp., 82 F.3d 1194 (1st Cir. 1996), the lower court held that such disclosure was not required because plaintiffs failed to plead that the interim results were an "extreme departure" from the Company's past results. The majority declined to follow the "extreme departure" standard and instead held that no special standard applies to the disclosure of intra-quarter financial information. Instead, according to the majority, a plaintiff need only plead that a reasonable investor would view the allegedly omitted information as material, i.e., as altering the "total mix" of information. The majority thus vacated the dismissal of the claim under Section 11's "misleading" prong and remanded it to the district court to consider whether the complaint adequately alleged that the omitted information was material, expressly stating that it was not expressing any view as to whether the complaint had done so.
Turning to Item 303, which requires disclosure of known trends, uncertainties or events under certain circumstances, the majority concluded that the district court improperly confined its analysis to whether the alleged negative trend was "persistent." Instead, according to the majority, consideration of whether something constitutes a trend is "a more fact-specific inquiry." The majority also held that the district court failed to consider whether the alleged negative performance changes that transpired at the Company after the first quarter of 2021 constituted an "event" or "uncertainty" for purposes of Item 303, even if they did not qualify as a trend, and that the "extreme departure" standard does not apply to consideration of whether disclosures of interim financial results are required under Item 303. The Item 303 claim was thus remanded by the majority for the district court to consider whether the complaint stated a claim based on Item 303, again with the majority expressly noting it was not setting forth any view as to whether it had done so.
Finally, the majority affirmed dismissal of claims to the extent based on Item 105, reasoning that Item 105 requires disclosure of future risks and not the disclosure of past harms. The majority further held that the Company sufficiently disclosed certain future risks plaintiffs alleged were omitted and that Item 105 did not require companies to quantify the risks they disclosed.
While Judge Rawlinson concurred with the dismissal of plaintiffs' Item 105 claim, she pointedly dissented from the majority's decision to revive the "misleading-by-omission" and Item 303 claims. Judge Rawlinson held that the majority's reasoning with respect to the disclosure of interim results could not be squared with Ninth Circuit "precedent cautioning against reliance on subsequent events to establish the existence of misleading statements." Judge Rawlinson further held that the majority's analysis of Item 303 was inconsistent with its plain language, which was amended in 2021 to provide "flexibility to choose the interim period presented," including because it failed to take "into account the differing temporal requirements for Item 303(b), involving full fiscal years, and Item 303(c), involving interim disclosures for specified periods." Judge Rawlinson further held that the complaint in any event failed to allege any misstatements or omissions given the extensive disclosures by the Company.
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