Extracted from Law360
On July 24, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of Steamfitters Local 449 Pension & Retirement Security Funds v. SunPower Corp., a securities fraud class action against SunPower and two of its former officers, holding that the plaintiff failed to plausibly allege that the company knew of a product defect at the time it issued the challenged risk factor disclosures.
This decision is the latest in a growing line of cases addressing whether, if ever, a company's risk factor disclosures can give rise to potential liability under the federal securities laws.
Risk factor disclosures, which public companies are required to include in U.S. Securities and Exchange Commission filings, have become an increasingly contested battleground in securities litigation.
Historically, issuers invoked such disclosures as a shield, arguing that they had warned investors about the very risks that later materialized. In recent years, however, plaintiffs have sought to wield these same disclosures as a sword, alleging that they were misleading because they portrayed known, existing problems as merely hypothetical future risks.
Background
SunPower's commercial solar energy systems incorporated connectors supplied by a third-party vendor. In its August and November 2021 Forms 10-Q, the company warned that component failures and resulting 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. The remediation effort resulted in an estimated $27 million warranty charge and caused the company to miss its 2021 earnings guidance.
SunPower's stock price fell nearly 17%, prompting the filing of a securities class action. The plaintiff alleged that SunPower's risk factor statements were misleading because they failed to disclose that the connector cracking issue had already arisen by the time the company filed its 2021 Forms 10-Q.
The U.S. District Court for the Northern District of California dismissed the complaint in February 2025, concluding that the plaintiff failed to plead particularized facts showing that the defendants knew of the alleged defect when the challenged disclosures were made.[1] The Ninth Circuit affirmed.[2]
When Does a Risk Materialize?
The crux of the decision is the panel's application of the Ninth Circuit's rule, articulated in In re: Alphabet Inc. Securities Litigation in 2021 and In re: Facebook Inc. Securities Litigation in 2023, that risk factor disclosures may be misleading when they describe as a future possibility a risk that has already materialized.[3]
The panel clarified, however, that a risk does not materialize merely because a defect exists somewhere within a company's operations. Rather, a risk materializes only when the defendant knows of the defect.
That distinction proved dispositive. Because the plaintiff failed to plausibly allege that anyone at SunPower knew of the connector defect when the challenged disclosures were made, the complaint failed to plead that the statements were false or misleading.
The panel also rejected the plaintiff's attempt to avoid this knowledge requirement by recasting its theory of liability as one based on omission. The plaintiff argued that 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.[4]
The panel held this "second formulation" of falsity likewise requires a plausible allegation that the defendant knew of the omitted facts when the statement was made.[5] Put differently, a plaintiff cannot circumvent the contemporaneous knowledge requirement simply by recharacterizing a misrepresentation claim as one sounding in omission.
SunPower in Context: The Circuit Landscape
SunPower is the latest in a growing line of decisions addressing potential risk factor liability under the federal securities laws, an area in which the law remains unsettled.
The U.S. Court of Appeals for the Second Circuit and the Ninth Circuit have recognized that it is possible for a plaintiff, in some circumstances, to state a claim based on allegedly false and misleading risk factor disclosures, although courts frequently dismiss such claims where the complaint lacks sufficient factual support.
Claims premised on allegations from former employee confidential informants commonly fail because such statements lack the detail necessary to demonstrate both the informants' reliability and the basis for their personal knowledge.[6]
Moreover, where risk factor warnings were repeated over time, courts in the Second and Ninth Circuits have dismissed claims challenging earlier disclosures when the complaint lacked particularized allegations showing that the disclosed risk had already materialized at the time of those earlier statements.[7]
As the SunPower court explained, the timing of the company's discovery can undermine any plausible inference that defendants knew of the defect when they made earlier challenged statements.[8]
The Ninth Circuit's December 2025 decision in HRSA-ILA Funds v. Adidas AG similarly demonstrates a willingness to closely examine the precise language of the challenged disclosures and assess their meaning from the standpoint of a reasonable investor. In Adidas, the court affirmed the U.S. District Court for the District of Oregon's detailed analysis of the disclosure's wording and forward-looking phrasing, finding that the language would not have misled a reasonable investor regarding existing circumstances.[9]
The U.S. Court of Appeals for the Sixth Circuit has taken a narrower view. Rather than treating risk disclosures as potentially conveying information about existing conditions, courts in the Sixth Circuit have emphasized that such disclosures are "inherently prospective in nature," including in its Jan. 21 decision in Newtyn Partners LP et al. v. Alliance Data Systems Corp.[10]
In that ruling, the Sixth Circuit reaffirmed its 2015 reasoning in Bondali v. Yum! Brands, Inc., explaining that a reasonable investor would not understand forward-looking risk warnings to contain representations about present circumstances.[11]
The U.S. Supreme Court had an opportunity in Facebook v. Amalgamated Bank to provide meaningful guidance regarding the treatment of risk factor disclosures. The issue presented was whether a forward-looking warning concerning the potential misuse of user data by third parties could be rendered misleading by the company's failure to disclose that such misconduct had previously occurred, notwithstanding the fact that the incident was already publicly known.
In late 2024, after full briefing and oral argument, however, the court dismissed the appeal without issuing a substantive decision.[12]
The oral argument underscored the difficulty of articulating a workable standard for assessing claims based on risk factor disclosures. Justice Amy Coney Barrett, for example, observed that "it seems to me very hard to articulate what the line is."[13] Several justices also suggested that the SEC may be better positioned to address the issue through rulemaking rather than judicial line-drawing.[14]
Without substantive guidance from the Supreme Court, lower courts remain free to apply their various approaches.
Considerations for Issuers
For public company boards and their counsel, SunPower offers both reassurance and practical guidance.
Risk factor disclosures were not intended to transform every disclosed risk that later materializes into a basis for securities fraud liability.
The SunPower ruling confirms that risk factor disclosures do not become actionable merely because the warned-of risk comes to pass. Rather, a plaintiff must plead particularized facts plausibly showing that the company knew the risk had already materialized when the disclosure was made.
Given their familiarity with their industries and operations, companies often accurately identify potential challenges before they arise. The mere fact that a company correctly anticipates a risk that later materializes does not, standing alone, support an inference of fraud.
The contemporaneous knowledge requirement provides important safeguards consistent with the notion that there is a higher bar by design for successfully pleading securities fraud claims.
By linking materialization to what the company actually knew at the time of the disclosure, the Ninth Circuit's decision in SunPower helps ensure that the subsequent emergence of a risk does not, by itself, render a prior warning misleading.
The opinion, therefore, preserves the forward-looking nature of risk disclosures and limits the risk of hindsight-driven litigation.
A Potential Safe Harbor on the Horizon
The SEC has also signaled interest in revisiting the scope of risk factor disclosures. SEC Chairman Paul Atkins has emphasized that disclosure obligations should focus on material, company-specific information rather than expansive warnings designed primarily to mitigate litigation risk.[15]
Atkins has suggested the possibility of a safe harbor that would protect companies from liability for failing to disclose the effects of widely publicized events that are reasonably likely to affect most issuers.[16] If adopted, such a measure could reduce pressure on companies to address every broadly recognized macroeconomic or industrywide risk in their SEC filings.
Whether through a regulatory safe harbor, Supreme Court intervention or other changes to the disclosure regime, additional guidance could enable issuers to focus less on minimizing litigation risk and more on providing shareholders with clear, company-specific disclosures about the risks most likely to affect investment decisions.
Courtney Quirós and Susan Hurd are partners, and Lex Mayo is a senior associate, at Alston & Bird LLP.
Alston & Bird associate Hope Kagan contributed to this article.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] See generally Jaszczyszyn v. SunPower Corp. , No. 22-cv-00956, 2025 WL 510431, at *1 (N.D. Cal. Feb. 14, 2025).
[2] Steamfitters Local 449 Pension & Ret. Sec. Funds v. SunPower Corp. , No. 25-1831, at *3 (9th Cir. July 24, 2026).
[3] See id. at *2 (citing In re: Alphabet, Inc. Sec. Litig. , 1 F.4th 687, 703-04 (9th Cir. 2021) and In re: Facebook, Inc. Sec. Litig. , 87 F.4th 934, 949 (9th Cir. 2023)).
[4] See id. at *2.
[5] See id. (citing In re: Facebook, Inc. Sec. Litig. , 87 F.4th 934, 948-49 (9th Cir. 2023) and In re: Alphabet, Inc. Sec. Litig. , 1 F.4th 687, 703 (9th Cir. 2021)).
[6] See E. Ohman J:or Fonder AB v. NVIDIA Corp. , 81 F.4th 918, 940–41.
[7] See City of Hialeah Employees' Retirement System v. Peloton Interactive, Inc. , 153 F.4th 288, 301 (2d Cir. 2025) (citing Set Capital LLC v. Credit Suisse Group AG , 996 F.3d 64, 86 (2d Cir. 2021); HRSA-ILA Funds v. adidas AG , No. 24-6655, 2025 WL 3471703 (9th Cir. Dec. 3, 2025).
[8] See Steamfitters, No. 25-1831, at *1.
[9] HRSA-ILA Funds v. adidas AG , No. 24-6655, 2025 WL 3471703, at *2 (9th Cir. Dec. 3, 2025); see also HRSA-ILA Funds v. adidas AG , 745 F. Supp. 3d 1127, 1140–43 (D. Or. 2024).
[10] Newtyn Partners, LP v. Alliance Data Sys. Corp. , 165 F.4th 947, 964 (6th Cir. 2026) (citing Bondali v. Yum! Brands, Inc. , 620 Fed.Appx. 483, 491 (6th Cir. 2015)).
[11] Id.
[12] Facebook, Inc. v. Amalgamated Bank, No. 23-980 (U.S. June 27, 2024) (cert. dismissed as improvidently granted).
[13] Transcript of Oral Argument at 42:2-25, Facebook, Inc. v. Amalgamated Bank (2024) (No. 23-980).
[14] See, e.g., id. at 64:9-16.
[15] Paul S. Atkins, Chairman, U.S. Sec. & Exch. Comm'n, Remarks at the Texas A&M School of Law Corporate Law Symposium (Feb. 17, 2026).
[16] Paul S. Atkins, Chairman, U.S. Sec. & Exch. Comm'n, Remarks at the Texas A&M School of Law Corporate Law Symposium (Feb. 17, 2026).