Legal Memorandum: Securities Fraud Cases in KS

Issue: Under Kansas law, is the failure to disclose the existence of a prior conviction material or misleading when making the sale of securities?

K.S.A. 17-12a501(2) provides as follows:

            It is unlawful for a person, in connection with the offer, sale, or purchase of a security, directly or indirectly:

. . .

(2) to make an untrue statement of a material fact, or omit to state a material fact necessary in order to make a statement made, in light of the circumstances under which it is made, not misleading.

The emphasized words of the statute make clear that there is a violation of the non-disclosure prohibition only when (1) the non-disclosed fact is “material” and (2) the disclosure is necessary in light of the circumstances to make a statement that was made, not misleading. 

In securities fraud cases, whether information that is not disclosed is “material” and thus sufficient to trigger a violation is relative and depends, in part, on whether the same information is available from another source.  See Grossman v. Novell Inc., 120 F.3d 1112, 1119 (10th Cir. 1997) (“Whether information is material also depends on other information already available to the market”).  Unless the withheld information would alter the total mix of available information, it is not “material.”  TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, (1976). 

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