Look, I get why courts are hesitant to allow securities fraud plaintiffs to state a claim based on false pretensions to corporate “ethics.” Courts fear this would cast too wide a net; Matt Levine’s “everything is securities fraud” would become literally true if any kind of corporate misconduct rendered an ethical code “false,” such that the code itself becomes a violation of Section 10(b). And that, as I have previously written, erodes the line between state law governance claims, and federal law fraud claims.

Still, I find it maddening when courts choose to dismiss these kinds of claims on the ground that ethical codes must be puffery because they are required by regulators. For example, the court in Andropolis v. Red Robin Gourmet Burgers, Inc., 505 F. Supp. 2d 662 (D. Colo. 2007), “A company’s essentially mandatory adoption of a code of ethics simply does not imply that all of its directors and officers are following that code of ethics. In fact, the mandatory nature of the adoption of such a code makes clear that all public companies—whether run by crooks or angels—will adopt just such a code.”

May I make the radical suggestion that the fact that a code is mandatory, and disclosure is mandatory, suggests that regulators believe that these codes are in fact material to investors and that fact should weigh against a puffery finding? Doesn’t it undermine the regulatory scheme for courts to simply declare certain legal requirements to be so much paperwork? GAAP financials are also required; are those per se immaterial as well?

Anyway, the latest example of the genre comes from In re Exscientia P.L.C. Sec. Litig., 2025 U.S. Dist. LEXIS 201398 (D.N.J. Oct. 10, 2025), where plaintiffs alleged that sexual harassment by a corporate CEO rendered the company’s code of ethics misleading. As the court put it:

Companies whose securities trade on American financial markets must adopt a code of conduct/ethics (or “explain why [they have] not done so”). 17 C.F.R. § 229.406(a); see also NASDAQ Rule 5610. Because companies are required to adopt codes of conduct, “the publishing of a code is not actually a statement or representation that it will be followed.” …And because companies must adopt codes of conduct, “[i]nvestors . . . gain no information about a corporation by its adoption of such a code.”

(citations omitted).

I beg to differ. As the Second Circuit has held (umm, inconsistently), for these kinds of situations, we should conduct a thought experiment about what would have happened had the company remained silent. And if, in the face of a regulatory obligation to adopt and disclose a code of ethics, a company entirely failed to do so, wouldn’t investors draw some pretty harsh conclusions? And doesn’t that mean, in turn, that the code has some informational value?

To be fair, the Exscientia court did not leave the matter there; the opinion goes on to note that in some cases, courts have permitted 10(b) claims to proceed based on violations of ethics codes, such as when the underlying misconduct was “pervasive.” In my view, then, the proper analysis is to recognize that the mere existence of a code of ethics does not imply there will never be violations of the code, but it does imply that the code exists, meaning, that there is some good faith effort to comply with its principles, such that the code is rendered false if no such effort is made. Because – as I argued in my paper addressing this – sometimes when courts say a statement is too “vague” for investors to rely upon, what they really mean is, sometimes a statement is so vague that it is consistent with (and thus is truthful as applied to) a very wide range of underlying facts. But it can still be rendered false if the underlying conduct is at the extremes, and in those cases, liability should follow.

And another thing. New Shareholder Primacy podcast! This week, me and Mike Levin talk about SEC Chair Paul Atkins’s Weinberg Center speech at the University of Delaware. Here at Apple, here at Spotify, and here at YouTube.