SECURITIES LAW IN TIMES OF WAR
War is one of the few forces that can reorder markets overnight. This is a serious topic for a serious time.
Energy exporters experience windfalls as supply tightens and prices surge.
Defense contractors benefit from accelerated procurement cycles and shifting political priorities.
Logistics providers see demand spike while routes become unstable.
Financial institutions confront sanctions exposure, counterparty risk, and capital flow disruptions.
Industrial companies face rising input costs, fractured supply chains, and operational uncertainty.
Technology companies navigate export controls, cyber threats, and geopolitical alignment.
Consumers, often far removed from the conflict itself, ultimately absorb the cost.
All of this happens at once.
Markets, by necessity, simplify this complexity. They identify beneficiaries, discount losers, and attempt to price outcomes. Capital flows quickly toward perceived winners. Valuations adjust in real time.
Public issuers of securities do not have the luxury of simplification.
They are required to describe their position within this shifting landscape with a level of precision that the market itself does not demand. That obligation is not conceptual. It is grounded in statute and rule.
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 prohibit any untrue statement of material fact or omission of a material fact necessary to make statements not misleading. Section 13(a) requires issuers to file periodic reports that are accurate and complete. Regulation S-K governs what those reports must contain.
This is where securities law becomes both most difficult and most important. It is a burden. It is also the reason the U.S. securities markets function with a level of trust that is not easily replicated.
I. THE CORE PROBLEM: DISCLOSURE IN THE FACE OF THE UNKNOWN
At its foundation, U.S. securities law imposes a simple obligation.
Do not mislead investors.
Materiality governs that obligation. Information is material if there is a substantial likelihood that a reasonable investor would consider it important. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976). Where future events are concerned, materiality turns on probability and magnitude. Basic Inc. v. Levinson, 485 U.S. 224 (1988).
In practice, that obligation is more demanding than it sounds. It requires issuers to describe not only what has occurred, but what management understands about what may occur. In some cases, it requires management to surface information that it should reasonably be aware of.
This is the domain of MD&A.
Item 303 of Regulation S-K requires disclosure of “known trends or uncertainties” that are “reasonably likely” to have a material effect on financial condition or results of operations. The SEC has interpreted that standard for decades through a two-step framework: if management cannot conclude that a material effect is not reasonably likely, disclosure is required.
That standard does not require certainty. It does not require prediction in the prophetic sense.
It is difficult, and often impossible, for management to reliably forecast:
The duration of a conflict
The scope of escalation
The direction of sanctions regimes
The behavior of governments and regulators
The evolution of supply chains
The response of customers and counterparties
The emergence of cyber threats linked to state or quasi-state actors
Each of these variables may materially affect the business.
The law does not relax in the face of that uncertainty. The issuer must disclose what it knows and, critically, what it understands about reasonably likely outcomes.
The difficulty is that what management “knows” is often incomplete, evolving, and internally contested.
That is the disclosure problem.
II. OMISSIONS, HALF-TRUTHS, AND THE LIMITS OF SILENCE
Most disclosure risk does not arise from affirmative misstatements. It arises from omissions.
Rule 10b-5 prohibits not only false statements, but also omissions that render statements misleading in light of the circumstances. Once a company speaks on a topic, it assumes a duty to speak completely and accurately. Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011).
The Supreme Court’s recent decision in Macquarie Infrastructure Corp. v. Moab Partners clarifies an important boundary.
A pure failure to disclose information required by Item 303 does not, standing alone, support a private Rule 10b-5 claim. Liability attaches where the omission renders an affirmative statement misleading.
In practice, most companies are not silent. They speak. They describe performance, conditions, and outlook. The risk arises where those statements are incomplete in light of known conditions. War increases the likelihood of that mismatch.
III. THE SEC HAS ALREADY SHOWN ITS HAND
The SEC’s expectations may evolve slightly between different administrations, but the basic tenets are the same.
In 2022, following Russia’s invasion of Ukraine, the Division of Corporation Finance issued a sample comment letter outlining the disclosures it expected to see. The Staff did not ask for generic references to geopolitical risk. It asked for specificity across the full disclosure framework:
Direct and indirect exposure to affected regions
Sanctions risk and compliance, including OFAC considerations
Supply chain disruptions and sourcing dependencies
Commodity price volatility and margin impact
Contract performance and collectability
Impairments, valuation changes, and exit activities
Currency controls and capital flow restrictions
Transportation and logistics risk
Customer and counterparty exposure
Cybersecurity risks, including state-linked threats
Disclosure controls and procedures under Exchange Act Rules 13a-15 and 15d-15
Board oversight of geopolitical risk
The point is straightforward.
War is not a line item risk factor. It is an enterprise-level input that affects MD&A, financial statements, controls, and governance.
Most disclosure failures in this context do not arise from failing to mention war. They arise from failing to integrate its effects across the reporting framework.
IV. THE MARKET WANTS A STORY. THE LAW WANTS A SYSTEM
War produces clean narratives quickly.
Energy companies benefit from higher prices. Defense contractors benefit from increased spending. Certain regions attract capital inflows.
Those narratives are directionally correct. They are often incomplete.
The law does not permit incomplete narratives where omissions are material.
The issuer is required to move beyond high-level framing and toward a system of analysis that reflects how the business actually operates.
That requires asking:
How does this event affect revenue drivers?
How does it affect cost structure?
How does it affect counterparties?
How does it affect contractual rights and obligations?
How does it affect asset values and assumptions?
How does it affect internal controls and information flow?
This is where most companies struggle. Item 303 requires disclosure of the answers to those questions where they reflect known trends or uncertainties.
Positive performance is easy to describe. The fragility embedded in that performance is harder to articulate with precision.
V. LNG AS A CASE STUDY
Liquefied natural gas provides a clear example.
It is a long-duration business built on capital-intensive infrastructure, long-term contracts, and stable demand assumptions.
War disrupts those assumptions.
Supply constraints drive prices higher. Exporters benefit. Earnings improve. The market rewards performance.
At sustained elevated prices, importing countries respond:
They revert to alternative energy sources
They reduce consumption
They renegotiate or delay contracts
They accelerate investment in renewables and storage
This creates tension between current performance and future demand.
VI. THE DISCLOSURE FAULT LINE
The relevant legal question is narrow. What does management know about what happens next? And how does in plan to react to what it perceives to be happening today?
If management understands that:
Demand is price-sensitive in a way that could affect long-term growth
Customers are under financial strain
Contract negotiations are becoming more difficult
Competitive alternatives are gaining traction
Infrastructure assumptions may need to be revisited
then those are “known trends or uncertainties” within the meaning of Item 303.
Generic statements such as “commodity prices are volatile” or “geopolitical conditions may impact operations” may not be sufficient if more specific information is available.
The law requires disclosure of the mechanisms through which current conditions may affect future performance.
The risk is not reporting strong results.
The risk is reporting strong results without disclosing the conditions that may undermine them.
VII. CONTRACTS DO NOT ELIMINATE DISCLOSURE RISK
Long-term contracts are often cited as a stabilizing factor.
If counterparties are under stress, if renegotiations are occurring, or if collectability is uncertain, those conditions may themselves constitute known trends.
The analysis is grounded in economic reality, not contractual form.
VIII. ASSETS ARE ASSUMPTIONS IN DISGUISE
Capital-intensive industries embed expectations in their assets.
Utilization rates, demand growth, pricing environments, and customer behavior are reflected in:
Depreciation schedules
Impairment testing
Fair value measurements
Capital allocation decisions
Item 303 requires disclosure of critical accounting estimates and the assumptions underlying them.
If those assumptions are under pressure, that fact may be material.
The SEC has consistently focused on this interface between internal analysis and external disclosure.
Silence in that context is not neutral. It can be interpreted as a position.
IX. CYBER RISK
War is not limited to physical conflict.
Cyber risk increases in periods of geopolitical tension.
The SEC’s 2023 cybersecurity rules require disclosure of material incidents and meaningful discussion of risk management and governance.
This operates as a parallel disclosure regime.
If geopolitical conditions alter a company’s cyber risk profile in a material way, that shift must be reflected in disclosure.
Failure to integrate cyber risk into broader geopolitical disclosure is increasingly difficult to defend.
X. PLAINTIFFS ARE APPLYING EXISTING LAW
There is no separate doctrine for wartime disclosure.
Existing frameworks are applied to new facts:
Rule 10b-5 misstatements and omissions
Item 303 failures, where tied to misleading statements
Risk factor inadequacy under Item 105
Misstatements regarding sanctions compliance or exposure
The pattern is consistent… right?
Internal awareness. External generalization. Subsequent adverse development.
That sequence is sufficient to attract both SEC scrutiny and private litigation, subject to the limits articulated in Macquarie.
XI. DISCLOSURE CONTROLS UNDER STRESS
Disclosure is not only about substance. It is about process.
Exchange Act Rules 13a-15 and 15d-15 require issuers to maintain controls designed to ensure that relevant information is captured and reported on a timely basis.
Geopolitical disruption strains those systems.
Information flow becomes fragmented. Escalation protocols are tested. Coordination across legal, finance, and operations becomes more difficult.
The SEC has explicitly asked whether conflict-related events have affected disclosure controls.
XII. THE EXECUTIVE PROBLEM
For management, the challenge is calibration.
Too little specificity creates omission risk. Overly definitive statements create their own exposure.
The objective is disciplined candor.
A defensible disclosure:
Accurately reflects current performance
Identifies known trends and uncertainties
Explains mechanisms of impact
Avoids unsupported conclusions
Updates as conditions evolve
The PSLRA safe harbor provides protection for forward-looking statements only where accompanied by meaningful, tailored cautionary language.
XIII. WAR EXPOSES THE SYSTEM
War does not create disclosure obligations.
It exposes whether those obligations are being met.
Section 10(b). Rule 10b-5. Section 13(a). Regulation S-K. Item 303. Item 105. Disclosure controls. Cyber rules.
The framework is established.
The question is whether management can apply it, in real time, to incomplete and rapidly changing information.
The companies that do this effectively are not those that predict outcomes.
They are those that understand their business well enough to describe what is happening, identify what is reasonably likely to follow, and disclose both with precision.
That is the standard. Easy right?
That’s all for now,
Braeden
