Risk Factor Disclosures Should Not Create More Risk For Companies

Katten's Sarah Eichenberger and Richard Zelichov say that when public companies publish risk factor disclosures, courts should analyze whether those can sufficiently excuse liability, but shouldn't transform them into liability sources for companies.

Risk factor disclosures by public company issuers have come under increased scrutiny in recent court decisions.

The scope, number, and length of risk factors has increased since the Securities and Exchange Commission amended its rules concerning risk factor disclosures in 2020. This has produced more such disclosures that are potentially subject to attack.

In addition, event-driven securities suits have become increasingly prevalent in recent years. These lawsuits often allege that an issuer has concealed or understated the risk of the "event" that gave rise to a stock price drop and the securities lawsuit.