The popstar Madonna is not the only one who appreciates the material world.

Madonna Material Girl
Popstar Madonna isn’t the only one who appreciates materiality.

The concept of “materiality” is used throughout the federal securities laws. The U.S. Securities and Exchange Commission (the “SEC”) has defined materiality since at least 1937, which is a long time considering that the SEC was founded in 1934. The SEC used to define “material” information to be “those matters as to which an average prudent investor ought reasonably to be informed before buying or selling the security registered.” In 1982, however, the SEC revised its Securities Exchange Act of 1934 Rule 12b-2, which defines “material” when used to qualify a requirement for the furnishing of information, to adopt the U.S. Supreme Court’s (the “SCOTUS”) definition of materiality.

Justice Thurgood Marshall
Justice Marshall wrote the majority opinion for the SCOTUS in the seminal opinion on materiality, TSC Industries v. Northway, in 1976.

The SCOTUS held that information is material if there is a substantial likelihood that a reasonable investor would consider the information important in deciding how to vote or make an investment decision. It further explained that material information exists if there is a substantial likelihood that disclosure of an omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information available.

In revising Exchange Act Rule 12b-2 to adopt the SCOTUS’ definition of “material,” the SEC determined to apply the same materiality interpretation for purposes of both the Securities Act of 1933 and the Exchange Act.

Generally, companies raising capital, like those conducting securities-based crowdfunding campaigns, provide disclosure to investors of material information based on the disclosure requirements of the exemption being relied upon or the requirements for registration.

See some of these campaigns here.

See Securities

Separately, here are some things to consider when investing in exempt securities offerings.

Be sure to read more about crowdfunding and its many forms here

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What is material information? And why does it matter?

One thought on “What is material information? And why does it matter?

  • September 3, 2020 at 10:06 am

    This is a very insightful and informative article on the realities of Regulation Crowdfunding for non-accredited investors in the process of doing their due diligence before making an investment decision.


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