Last year, the U.S. Supreme Court had the opportunity in the Facebook case to address the extent to which corporate risk disclosures can form the basis for securities fraud liability. After oral argument, however, the Court decided to dismiss the appeal as improvidently granted. That has left the door open for a wide range of potential decisions from the lower courts.
In Craig v. Target Corp., 2024 WL 4979234 (M.D. Fla. Dec. 4, 2024), the court considered whether Target’s risk disclosures in its 2021 and 2022 annual reports about ESG and DEI initiatives were false and misleading because they failed to disclose that the company would embark on a Pride Month Campaign in May 2023 that could result in customer boycotts and loss of sales. Target generally had disclosed that negative reputational incidents could adversely affect its results and that it faced varied stakeholder expectations regarding how it addressed environmental, social, and governance matters. In addition, Target previously had been the subject of a customer boycott as the result of its opposition to North Carolina’s 2016 transgender bathroom law.
The court found, however, that Target had failed “to mention the specific risk of its upcoming 2023 Pride Month Campaign” and that the company knew or should have known that this particular campaign “posed a risk of backlash and financial repercussions.”
Holding: Motion to dismiss denied.
Quote of note: “Target’s plan to enact a new campaign – i.e., placing controversial merchandise at the center of its stores – could be construed as a change to their ESG/DEI campaigns in prior years. Upon review of the amended complaint and the parties’ briefing, it is unclear whether this information was publicly available and it is further unclear how much information investors and Plaintiffs knew about the plans for the new campaign. Thus, Plaintiffs have adequately pleaded that information revealed in the 2021 and 2022 risk disclosures may not have been complete.”
The 10b-5 Daily 