When Looking Glass Corporation wishes to issue certain securities, it must provide sufficient information for Alice, and other unsophisticated investors, to evaluate the financial risk involved. Specifically, the law imposes liability for making a false statement or omission that is "material.". What sort of information would Alice consider material?

Answer 1

Most likely, Alice, and any other average unsophisticated investor, is not concerned with minor inaccuracies but with facts that if disclosed would tend to deter her from buying the securities. This would include facts that have an important bearing on the condition of the issuer and its business—fraud, a dividend change, a significant change in the firm's financial condition, and a new discovery, process, or product, as well as its liability, loans to officers and directors, customer delinquencies, and pending lawsuits. Making false statements or omissions with respect to this type of information could subject a corporation to liability under the securities laws.