Drug Company X reports the introduction of a new pill that is guaranteed to result in weight loss with no side effects.The information was advertised in connection with a public offering of stock of the company's stock.Later,it becomes apparent through additional testing that unfortunately the new pill also results in premature hair loss,a material issue.Misha is the president of Company X and is pleased with sales of the drug but recognizes that the drug can no longer be advertised as having no side effects.Still,Misha does not believe any misrepresentations were made because Misha was not aware of the hair loss side effect when previous statements were made.Misha decides to do nothing.Is this decision correct as far as Rule 10b-5 is concerned?

Question

Quizplus · Accepted Answer

Misha has an obligation to disclose the material information about the hair loss side effect, even if they were unaware of it when previous statements were made. Failure to disclose this information may be considered fraudulent under Rule 10b-5, which prohibits the omission of material facts that would make statements misleading. The fact that the side effect is cosmetic or not life-threatening does not absolve Misha of their duty to disclose.

Drug Company X Reports the Introduction of a New Pill