SEC v. Bausch & Lomb Inc.

United States Court of Appeals for the Second Circuit · 1977 · Corporations

565 F.2d 8 (2d Cir. 1977)

Updated August 22, 2026

CorporationsSecurities RegulationMaterialitySEC InjunctionsRule 10b-5Section 10(b)inside informationearnings forecast

Facts

Amid intense market concern over Bausch & Lomb's Soflens product, Schuman, the company's chairman and principal financial spokesman, met with several analysts on March 15 and 16, 1972. During those conversations he discussed publicly known matters such as adverse publicity, flattened sales trends, and delays in introducing two new products, and on March 16 he later told analyst MacCallum a first-quarter earnings range of $.65 to $.75 after rumors falsely attributed a lower estimate to him. Schuman also promptly conveyed the estimate to a Wall Street Journal columnist and then caused the company to issue a press release. The district court found that only the quarterly earnings estimate was material, but denied an injunction because the SEC failed to show a reasonable likelihood of future wrongdoing.

Issue

Whether the district court erred in concluding that most of Schuman's disclosures were not material and, even assuming a past securities-law violation based on the earnings disclosure, whether the SEC proved a reasonable likelihood of future violations sufficient to justify injunctive relief.

Rule

For securities-law materiality, information is material only when there is a substantial likelihood that a reasonable investor would view the disclosure as significantly altering the total mix of available information. In an SEC enforcement action for injunctive relief, past wrongdoing alone does not automatically justify an injunction; the SEC must provide positive proof of a cognizable, reasonable likelihood that the misconduct will recur, assessed from the totality of the circumstances.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Seattle, Mira Patel, chief financial officer of Cascadia Vision Systems, speaks with an industry analyst after weeks of public news reports about product defects and slowing demand. She says the company is still preparing its routine quarterly budget and adds that recent criticism in the trade press has probably hurt sales, but she gives no numerical forecast or new internal metrics.

If the SEC claims Mira disclosed material nonpublic information, which is the strongest argument against materiality under the governing rule?

Explanation. Materiality requires a substantial likelihood that disclosure would assume actual significance to a reasonable investor and significantly alter the total mix of available information. Statements that merely test or explain public information, or refer to routine budgeting practices without revealing meaningful new facts, are not material on these facts.