Sec Lit IQ: MoFo’s Quarterly Federal Securities Litigation and Delaware Corporate Litigation Newsletter (Q4 2025)

In our latest edition of MoFo’s Quarterly Federal Securities and Corporate Litigation Newsletter, we provide a rundown of select developments from the fourth quarter of 2025, including:

• An Eleventh Circuit revival of a securities fraud class action where multiple disclosures cumulatively served as a corrective disclosure;
• A Texas Business Court ruling clarifying how termination and notice provisions in commercial contracts will be analyzed;
• A unanimous Third Circuit decision clarifying that a company’s failure to detect fraud does not render its due diligence and monitoring disclosures actionable under the federal securities laws; and
• New reporting obligations for foreign private issuer directors and officers pursuant to Section 16(a) of the Securities Exchange Act of 1934.

The “Truth Can Leak Out” in the Form of Multiple Corrective Disclosures

The Eleventh Circuit recently revived a securities fraud class action, explaining that the district court “improperly searched for a singular corrective disclosure” and erroneously assumed “markets cannot link multiple pieces of information.”[1]

Investors sued NextEra Energy under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, alleging NextEra misrepresented its involvement in a political scheme involving consulting firm Matrix LLC and its former CEO, Jeff Pitts. Plaintiffs alleged files retrieved from Pitts’ partially destroyed server revealed Pitts had funneled money into various LLCs to further election interference schemes involving NextEra’s largest subsidiary, Florida Power & Light Company (FPL). After the Orlando Sentinel exposed FPL’s alleged election scheme, NextEra’s executive officers issued multiple statements denying NextEra’s involvement and stating its own investigation revealed no wrongdoing. The following year, NextEra filed two Form 8-Ks disclosing the abrupt departure of FPL’s CEO and attaching a severance agreement in which the former CEO agreed to a compensation claw-back in the event he was convicted of, or admitted to, a felony in connection with his employment. In the same filings, NextEra warned of “material fines” and a potential “material adverse impact” on NextEra’s reputation in connection with allegations of election misconduct.

The Southern District Court of Florida dismissed plaintiffs’ claims, holding that they failed to identify a corrective disclosure that revealed a truth previously concealed or obscured by NextEra’s alleged fraud. On appeal, the Eleventh Circuit reversed, holding that the district court “improperly searched for a singular corrective disclosure” and “erroneously assume[d] markets cannot link multiple pieces of information.” Consistent with holdings in other Circuits, the Eleventh Circuit held that a plaintiff need not rely on a “single, complete corrective disclosure; rather, it is possible to show that the truth gradually leaked out into the marketplace ‘through a series of partial disclosures.’” The Eleventh Circuit explained that corrective disclosures need not specifically identify the earlier misstatement(s), especially because “[c]ompanies are not usually keen to draw attention to their earlier fraud” and “investors do not need handholding to connect the dots.” Rather, under the Eleventh Circuit’s test, a court must examine the “cumulative effect” of the purported corrective disclosures after examining the disclosures “in toto.” A plaintiff adequately alleges loss causation where the cumulative effect of the corrective disclosures shows that “the investing public related the corrective disclosure to the earlier misinformation.”

In its ruling, the Eleventh Circuit panel highlighted analyst reports linking NextEra’s disclosures regarding the departure of its CEO with the fraudulent election scheme. The panel explained that such reports helped plaintiffs plead loss causation by showing that those with financial acumen had made the connection between NextEra’s corrective disclosures and FPL’s political scheme, and may have helped the investing public draw the same connection. The Eleventh Circuit found that, taken together, plaintiffs’ allegations regarding NextEra’s new risk disclosures, its CEO’s abrupt departure, and the claw-back provision in the CEO’s severance agreement adequately pled loss causation.

Takeaways:

• Companies should be mindful of the risks accompanying piecemeal disclosures of negative events.
• The “cumulative effect” of multiple corrective disclosures can be used to show loss causation under Section 10(b). 
• Financial analyst reports drawing connections that “less savvy” investors may not otherwise have drawn may be sufficient to relate corrective disclosures to earlier misleading statements for purposes of pleading loss causation. 

Early Merits Decisions in the Texas Business Court

The newly formed Texas Business Court began hearing cases on September 1, 2024. In its first year, however, the Business Court issued primarily jurisdictional opinions, addressing qualified transactions and amount-in-controversy questions. Recently, the Business Court began issuing substantive commercial rulings—revealing an analytical approach that closely mirrors Delaware’s corporate jurisprudence.

On November 8, 2025, the Business Court’s Eleventh Division issued one of its first substantive contract decisions in City Choice Group, LLC v. TMC Grand Blvd Land Company, LLC.[2] The case involved two corporations that entered into a purchase and sale agreement for the sale of a hospital property (the “Agreement”). The Agreement granted the buyer the “unilateral right to terminate [the Agreement] during the pendency of a designated Inspection Period, for any or no specific reason,” in exchange for $100,000 of independent consideration. During the inspection period, the buyer raised several issues with the property, seeking a price reduction and amendments to the Agreement. Late on the final day of the inspection period, the buyer emailed a revised amendment to the seller and stated, “If you cannot sign and return to me, then this email serves as our notice to terminate the Agreement.” The seller did not sign or respond before the Inspection Period expired at midnight. After the seller treated the Agreement as terminated, the buyer sued seeking specific performance of the contract. The seller moved for summary judgment, arguing that the buyer’s email had terminated the Agreement. In response, the buyer sought to set aside its own termination email by arguing that the Agreement was akin to an option contract, requiring strict compliance with notice terms that the buyer’s email failed to meet.

The Business Court rejected that position, declining to interpret the buyer’s termination right during the inspection period as an option contract. Because the buyer’s termination email was not the exercise of an option, the Court held that “the applicable standard is that which is applied to contractual written notice requirements—substantial compliance.” Although the Court observed that “[f]acially, none of the communications or notices in evidence before the Court strictly complied with” the notice provision, it concluded that the seller actually received the termination notice and was not prejudiced. The Court therefore refused to allow the buyer “to avoid the consequences of its actions.”

This decision illustrates the Business Court’s emerging substantive jurisprudence, reflecting a developing commercial law framework grounded in text, context, and equitable restraint, all hallmarks of Delaware’s analytical method.

Takeaways:

• After an initial focus on jurisdiction, the Texas Business Court is now developing a body of substantive decisions in commercial and corporate cases. These recent decisions provide insights into how the Business Court is likely to approach sophisticated commercial disputes.
• City Choice provides an early indication that the Business Court will enforce commercial agreements between sophisticated parties as written and according to their purpose. At the same time, the Business Court has indicated that it will apply equitable principles to bar parties from taking inconsistent positions to a counterparty’s detriment.

Third Circuit Affirms That Securities Laws Target Deception—Not Mismanagement or Negligent Oversight

In Handal v. Innovative Industrial Properties, Inc., the Third Circuit unanimously affirmed dismissal of a securities fraud class action against a cannabis-focused real estate investment trust (REIT), providing guidance on when due diligence and monitoring statements are actionable under federal securities laws.[3]

Innovative Industrial Properties, Inc. (IIP) leases properties to state-licensed cannabis operators. Plaintiffs alleged that IIP misled investors by touting its due diligence and monitoring practices while a major tenant, Kings Garden, was perpetrating a reimbursement fraud. Over approximately two years, IIP paid Kings Garden more than $48 million for purported improvements. But when IIP noticed a missing signature and mismatched dollar values on a June 2022 reimbursement request, an investigation revealed that Kings Garden had falsified invoices, with some purported contractors having performed no work at all. After Kings Garden’s fraud came to light, IIP’s stock fell and shareholders brought a class action under Section 10(b) and Rule 10b-5, claiming IIP had misled them by touting its due diligence and monitoring while remaining willfully blind to Kings Garden’s fraud.

The Third Circuit analyzed five categories of challenged statements and found that four were not actionably false or misleading. The Third Circuit’s falsity analysis focused on qualifying language. The panel found that IIP’s disclosures—stating that acquisitions were “typically” subject to due diligence and that it monitored tenants “in some instances” through site visits—were neither false nor misleading because IIP never promised that every deal would follow identical procedures or that all tenants would receive site visits. Similarly, executive statements praising Kings Garden as a “top producer” with a “distinguished brand” were non-actionable under Omnicare. To be actionable, the speakers must have disbelieved or known facts contradicting the statement—but plaintiffs pled neither. Even if IIP missed obvious red flags, the federal securities laws “do not make it unlawful to do bad business, act negligently, breach fiduciary duties, or otherwise fail to take care in managing corporate affairs.”

The Third Circuit did find one statement to be plausibly false: IIP’s “rash” decision to issue a press release asserting that “any [IIP] reimbursements relate only to verified, qualified improvements” on the same day that reports of its tenant’s alleged fraud came to light. Because IIP had in fact reimbursed Kings Garden for improvements that were neither verified nor qualified, this factual assertion did not match reality. Yet the Third Circuit affirmed dismissal because plaintiffs failed to adequately plead scienter.

The Third Circuit’s scienter analysis is significant for two reasons. First, the Third Circuit panel recognized for the first time that willful blindness can satisfy the scienter requirement, adopting the standard from sister circuits that “[an] egregious refusal to see the obvious, or to investigate the doubtful” can help establish the requisite mental state. Second, the panel made it clear that the Reform Act requires pleading this allegation with particularity, which plaintiffs failed to do. The complaint did not allege that any employee noticed an issue with the draw requests and then failed to investigate, and also did not mention how anyone would have been motivated to “bury their heads in the sand.” The panel then declined to adopt a corporate scienter doctrine, emphasizing that even circuits recognizing such a theory limit it to “exceedingly rare” cases involving “dramatically false” statements.

Takeaways:

• Carefully qualified disclosure language—such as “typically” or “in some instances”—are crucial to defending against securities claims.
• Companies should avoid “rash” or reflexive denials of wrongdoing before performing an investigation. Blanket statements touting compliance with procedures may expose companies to liability if an investigation of “red flags” would have revealed that the procedures were not followed or there was a failure to prevent fraud or wrongdoing.

New Reporting Obligations for Foreign Private Issuer Directors and Officers

On December 18, 2025, President Trump enacted the Holding Foreign Insiders Accountable Act (HFIAA) as part of the 2026 National Defense Authorization Act.[4] The HFIAA expands beneficial ownership reporting obligations to directors and officers of foreign private issuers (FPIs) and requires such reporting starting on March 18, 2026.

Section 16(a) of the Exchange Act requires directors, officers, and 10% shareholders of companies with SEC-registered equity securities to promptly and publicly disclose transactions or derivatives of such securities. Under Rule 3a12-13(b) of the Exchange Act, FPIs were historically exempt from such reporting requirements.[5] The HFIAA amends the Exchange Act such that Section 16(a) now eliminates portions of the FPI exemptions and requires that FPI directors and officers file reports on Forms 3, 4, and 5 to disclose their beneficial ownership of the FPI’s equity securities, including any subsequent changes in ownership.[6] Generally, Form 3 discloses initial ownership of equity securities within 10 days of becoming an officer or director. Form 4 discloses changes in the beneficial ownership of equity securities within two business days of the change. Form 5 serves as a fiscal year-end filing to disclose all other insider transactions not previously covered by Forms 3 and 4. The reporting requirements apply to all holdings and transactions of the FPI’s equity securities, regardless of whether conducted in the United States or with United States persons.

There remain, however, a few exemptions for the reporting obligations. First, beneficial owners of more than 10% of an FPI’s registered voting equity securities are not required to file the Section 16 reports. Second, FPI directors and officers remain exempt from the Section 16(b) short swing profit repayment obligations. Third, because many foreign jurisdictions may already require company insiders to report on their share ownership and trading, the HFIAA allows the SEC to exempt any person, security, or transaction or any class or classes of persons, securities, or transactions, from the requirements of Section 16(a), if the SEC determines a foreign jurisdiction has “substantially similar” requirements.[7]

Takeaways:

• Effective on March 18, 2026, directors and officers of foreign private issuers will become subject to Section 16(a) reporting obligations.
• The new reporting requirements include any holdings or transactions conducted outside of the United States or with non-United States persons.
• FPIs remain exempt from the rest of Section 16.

Maya L. King, an associate in our San Francisco office and Rodrigo A. Bermudez an associate in our New York office, contributed to the writing of this article.

[1] Jastram v. NextEra Energy, Inc., No. 24-13372, 2025 WL 3293701, at *11 (11th Cir. Nov. 26, 2025).

[2] See City Choice Grp., LLC v. TMC Grand Blvd Land Co., LLC, No. 24-BC11A-0002, 2025 WL 3164075 (Tex. Bus. Ct. Nov. 8, 2025).

[3] See Handal v. Innovative Industrial Properties, Inc., 157 F.4th 279 (3d Cir. Oct. 15, 2025).

[4] Holding Foreign Insiders Accountable Act, S. 1071, 119th Cong. § 8103(b)(1) (engrossed amendment as passed by House, Dec. 10, 2025).

[5] 17 CFR § 240.3a12-3, “Securities registered by a foreign private issuer […] shall be exempt from sections 14(a), 14(b), 14(c), 14(f) and 16 of the [Exchange] Act.”

[6] See S. 1071, § 8103(b)(1)(A) (2025); S. 1071, § 8103(c) (2025); 17 CFR § 249.103; 17 CFR § 249.104; 17 CFR § 249.105.

[7] S. 1071, § 8103(b)(5).