On July 24, 2026, the Ninth Circuit affirmed dismissal of a securities fraud class action against SunPower Corporation and two of its former officers, holding that the plaintiff failed to plausibly allege SunPower knew of a product defect at the time it issued the challenged risk factor disclosures. The decision is the latest in a growing line of cases addressing whether and when a company’s risk factor disclosures can give rise to liability under the federal securities laws.
Risk factor disclosures have become an increasingly contested battleground in securities class action litigation. Historically, companies relied on their risk factor disclosures defensively, pointing to them as evidence they had warned investors about the very risks that later materialized. In recent years, however, plaintiffs have turned those disclosures against issuers, alleging the risk factors themselves were misleading because they framed known, existing problems as merely hypothetical future concerns.
The circuits have not been uniform in their approach to these issues. Decisions from the Second and Ninth Circuits have recognized, in theory, that a plaintiff may state a claim based on allegedly false risk factor disclosures, though in practice those courts often dismiss such claims for insufficient factual detail. The Sixth Circuit has taken a more skeptical view, emphasizing that risk disclosures are inherently prospective and that the use of the future tense, without more, would not lead a reasonable investor to infer anything about current conditions. The Supreme Court had an opportunity to resolve the issue in Facebook v. Amalgamated Bank but dismissed the appeal without issuing a substantive opinion, leaving the circuit split unresolved.
Against that backdrop, the Ninth Circuit's decision in SunPower is a notable addition. Like the Ninth Circuit’s earlier decision in HRSA-ILA Funds v. Adidas AG, the opinion reflects a willingness to closely parse the challenged risk factor language and to demand that plaintiffs do more than point to the eventual materialization of a risk. This approach is consistent with the principle that risk factor disclosures are forward-looking by design and should not be treated as implicit representations of present conditions.
The facts underlying the SunPower case illustrate this pattern. SunPower’s commercial solar systems incorporated connectors supplied by a third-party vendor. The company’s August and November 2021 Forms 10-Q included risk factor disclosures warning that component failures and associated warranty claims could adversely affect its operations and financial performance. In January 2022, SunPower disclosed it would proactively replace certain connectors after identifying a cracking issue, resulting in an estimated $27 million warranty charge and causing the company to miss its 2021 earnings guidance. SunPower’s stock price fell nearly 17%, and a securities class action followed.
The plaintiff alleged SunPower’s risk factor statements were misleading because they failed to disclose that the connector cracking issue had already emerged by the time the 2021 Forms 10-Q were filed. The District Court for the Northern District of California dismissed the complaint, finding the plaintiff had not pleaded particularized allegations that the defendants knew of the defect when the challenged disclosures were made. The Ninth Circuit has now affirmed.
The crux of the decision is the panel’s application of the Ninth Circuit’s rule, established in Facebook and Alphabet, that risk factor disclosures can give rise to liability when they warn risks “could” occur if plaintiffs have successfully pleaded with the required detail that those risks have already materialized. The panel made clear, however, that a risk does not “materialize” merely because a defect exists somewhere in a company’s operations. Rather, materialization occurs only when the defendant knows of the defect. That distinction was dispositive here: because the plaintiff could not plausibly allege anyone at SunPower knew of the connector defect at the time of the challenged disclosures, the risk had not yet materialized, and the statements were not false or misleading.
The panel also rejected the plaintiff’s attempt to avoid this knowledge requirement by recasting its theory as one of omission. The plaintiff argued a statement is actionable whenever it “create[s] an impression of a state of affairs that differs in a material way from the one that actually exists,” regardless of whether the defendant was aware of the discrepancy. The panel held this “second formulation” of falsity does not eliminate the need for a plausible allegation that the defendant knew of the omitted facts at the time of the challenged statement. In other words, plaintiffs cannot sidestep the contemporaneous knowledge requirement simply by relabeling a claim as an omission.
SunPower reinforces that risk factor claims rise or fall on what the company knew at the time it made the statement in question. If a complaint lacks particularized allegations of the defendant’s contemporaneous awareness of an underlying defect or risk, claims based on risk factor disclosures should not survive a motion to dismiss. The decision also confirms that plaintiffs cannot circumvent this requirement by reframing their allegations as omissions.
Risk factor disclosures are forward-looking by design, and absent particularized evidence that a company knew of an existing problem and chose to frame it as hypothetical, SunPower confirms they should be treated as such.
If you have any questions, or would like additional information, please contact one of the attorneys on our Securities Litigation team.
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