A public company engaged in oil drilling reported to the stock exchange the discovery of oil signs, but omitted from the report information relevant to the economics of production, even though it had it and was obligated to publish it under the Securities Law.
The court rejected the plaintiff’s claim due to the lack of a causal connection between the misleading report and the damage caused to the plaintiff. Securities law is based on the principle of “adequate disclosure.” The centrality of the disclosure principle stems from the information gaps between the company, which holds the information, and the investing public, which is not exposed to it. The prohibition on including misleading information in reports submitted in accordance with the law is a complementary aspect of the duty of disclosure. Misleading information can also be expressed by way of omission, that is, by refraining from providing relevant data, and not only by providing incorrect information. A claim for securities fraud is tortious in nature, and in order for liability for misleading information to arise, the plaintiff must prove the existence of a misleading information, damage, and a causal connection between the misleading information and the damage. Here, we are dealing with a case in which, along with significant oil signs, it was also discovered that the profitability of production was lower than previously published, but despite this and despite the express requirement in the law, the company did not publish this figure, and therefore this is a misleading report. On the other hand, the plaintiff did not show a causal connection between the missing and misleading report and his loss-making investment, and therefore he is not entitled to compensation.
To read the verdict, Tel Aviv District Court (Tel Aviv) 66846-06-20 Shimon Asher v. Shemen Oil and Gas Resources Ltd.
Published in Legal Channel 433 19.02.2025 Afik & Co.
