Sex Sells Contracts: Why Not Securities Law?
I could (as this blog did) identify a case or so that directly appeals to your prurient interest in the topic. But maybe the better path is to take a step back, and consider a more academic question.
Let us assume that you, a general counsel, have just learned that your CEO is having a consensual affair with a subordinate. Also assume that the corporation has recently stated, in a regular reporting statement, that its management team is “cohesive, ethically sound, and 100% committed to shareholder value.” [Note: this is entirely hypothetical]
Putting aside other considerations, is it likely that a court or jury would find it materially misleading to have omitted disclosure of the affair?
I think there is at least an argument that reasonable shareholders would find it significant that the officers of the corporation are romantically involved with each other, because such relationships often end badly, either in litigation or in a private settlement. Assuming materiality, I think that plaintiffs would assert that failing to disclosure the affair renders the statement misleading (“cohesive” and “100% committed” have a different meaning in light of the relationship). Still, I am tempted to think that we should immunize non-disclosure to protect the privacy interests of the employees in question. Does the answer differ if the affair is an adulterous one?
If disclosure is required, I have to bet that the following example wouldn’t do at all.
“I’ll try to answer you, but you can’t put a lot of faith in what I’m going to say,” [the CEO] said, according to a transcript of the call. “I know in one meeting I said if we look at this a year from now it will be clear, or should be clear, you know, what is and what we can do and what’s attainable and how quickly, and I still think that’s true. God knows, I would hope that’s true.”
Er. What was that again?