Also known as: materiality threshold · material threshold · material thresholds · materiality · materiality standard
Written by attorneys · grounded in primary & secondary sources — see below
A standard for determining whether a fact or piece of information is important enough to influence a reasonable decision maker or affect a legal proceeding or obligation. The threshold requires a substantial likelihood that the item would alter the total mix of information available or change the outcome of a transaction or dispute.
Marcus Mitchell testifies in a minor contract dispute that he mailed a notice on Tuesday rather than Wednesday. Even if the testimony were false and completed exactly as planned, the date would have no bearing on any element the court must decide. Because the statement fails the materiality threshold, Marcus cannot be convicted of attempted perjury.
Matrix Technologies and Millennium Media begin preliminary merger discussions. The talks involve only a 20 percent chance of success and would affect less than 5 percent of Matrix's revenue if completed. Matrix's officers conclude the probability-magnitude combination does not cross the materiality threshold, so they omit mention from public filings.
Select any source to read its text and confirm it supports the definition.
Majestic Construction submits comments to an agency about a proposed reactor license. The agency determines that the comments raise issues already addressed in the record and would not alter the licensing decision. Because the comments do not meet the materiality threshold, the agency need not reopen the proceeding.
Morgan Financial petitions an agency to consider an additional alternative site for a power plant. The agency finds the alternative would produce identical environmental impacts already studied. The petition does not cross the materiality threshold, so the agency may limit its review to the alternatives already examined.
Monica Morgan receives a proxy statement that omits a director's prior criminal conviction for fraud. A reasonable shareholder would view the conviction as altering the total mix of information about the director's fitness. The omission crosses the materiality threshold and supports a claim under the proxy rules.
Maya Malik, a shareholder, challenges a board's statement that a merger offers a fair price. The statement is phrased as an opinion but rests on undisclosed facts showing the price is below market. Because the omitted facts would significantly alter the total mix, the statement crosses the materiality threshold and may give rise to liability.
The test asks whether a reasonable investor would view the information as significantly altering the total mix. A low probability of a large transaction can still meet the threshold when the magnitude is great enough.
Materiality is an essential element of the completed offense. If the false statement would not have been material even if completed as planned, the defendant cannot be guilty of attempt.
An omission is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.
It confirms that an opinion may be actionable when the speaker knows facts showing the opinion is false and those facts would significantly alter the total mix of information.
…adopt the TSC Industries standard of materiality for the § 10(b) and Rule 10b-5 context.[^maj-8] III The application of this materiality standard to preliminary merger discussions is not self-evident. Where the impact of the corporate development on the target's fortune is certain and clear, the TSC Industries materiality definition…