The tariffs that President Donald Trump has imposed on foreign countries have raised myriad questions on how import restrictions and elevated costs resulting from the president’s tariff policies will impact business for U.S. manufacturers and other companies engaged in cross-border transactions. Over several months, the administration has announced, delayed, and revised tariffs — sometimes repeatedly — leading to confusion regarding the potential effects on manufacturing, business operations, and profitability of companies in the United States that rely on foreign supply chains.  

Sorting out the tariff issue largely has been a regulatory issue, as we detailed in a previous client alert. However, tariff-related risk disclosures made by public companies are now under the scrutiny of shareholders, and have been raised in a securities class action lawsuit by shareholders against Dow Inc. and The Dow Chemical Company, its CEO and board chair, its chief financial officer, and its chief operating officer. Filed on August 29, 2025, in federal court in Michigan, the suit alleges that Dow failed to disclose risks related to tariff uncertainties, in violation of Section 10(b) and Rule 10b-5 of the Exchange Act of 1934. The lawsuit has important implications for public companies and their executives, and highlights considerations they should take to proactively mitigate potential securities fraud claims based on tariff-related risk disclosures made in periodic financial reporting disclosures and other public statements.

Named plaintiff Todd A. Sarti represents a class of investors who purchased or sold Dow securities between January 30, 2025, and July 23, 2025. The plaintiff class alleges defendants made materially false or misleading statements about the company’s ability to maintain positive business and financial results and to issue Dow’s "industry-leading dividend" notwithstanding current "macroeconomic and tariff-related headwinds." Plaintiffs further allege that Dow violated the securities laws by overstating business and operational expectations and understating tariff-related uncertainties and other macroeconomic pressures that could affect Dow’s financial outlook.  

The complaint also asserts that Dow misrepresented its ability to mitigate external pricing pressures and understated the risks to its dividend and financial health. It cites as an example, Dow’s 2024 10-K, filed on February 4, 2025, which stated that the outlook for its packaging and specialty plastics segment in 2025 would benefit from "[i]n-region presence and superior [feedstock] flexibility" that would sustain volume growth and profit margins, according to the complaint. The complaint also alleges that statements Dow executives made were materially misleading.  

The plaintiffs further allege that Dow highlighted its "competitive advantages" and disregarded the impact of tariff-related uncertainties, including excess supply coming from new market entrants that created additional pricing pressure on Dow. It points to an April 24, 2025, investor earnings call, during which Dow executives claimed that the company had "engaged in rigorous scenario planning to identify potential additional cost pressures and mitigation strategies," according to the complaint. These statements allegedly were uncovered on July 24, 2025, when Dow released its 2025 second quarter results and a non-GAAP loss resulting from a depressed earnings environment "amplified by recent trade and tariff uncertainties." 

According to plaintiffs, Dow and its executives violated Regulation S-K Item 303 by failing to disclose known trends or uncertainties reasonably likely to materially impact the results of a company’s continuing operations in Management’s Discussion & Analysis. Plaintiffs claim that these and other misstatements or omissions made during the class period violated Section 10(b) of the Exchange Act and Rule 10b-5. Plaintiffs further allege that the Dow executive officer defendants, as controlling persons, violated the Exchange Act through these fraudulent actions.

Implications of Securities Fraud Claims Based on Tariff-Related Uncertainty

Tariff-related uncertainties appear to be a cornerstone of Dow’s alleged misrepresentations regarding the company’s resilience to the weak global macroeconomic environment and the strength of their competitive position. The unpredictability of Trump’s tariff moves diminishes the value of recent tariff policy as a factor in the assessment of potential disruption to a company’s business. The economic volatility caused by tariffs and the resulting cost increases anticipated in the United States must be considered an uncertain risk that companies must disclose to investors. 

The allegations against Dow foreshadow that plaintiffs' lawyers are likely to dissect corporate risk disclosures regarding the ability to respond to adverse global trade conditions caused by tariffs. Allegations of shoddy internal controls around risk analysis and risk mitigation may be used to bolster claims of misrepresentations regarding the strength of the company’s supply chain and the ability to weather higher operating costs and increased retail prices for domestic customers.

Proactive Steps Companies Can Take 

Companies should consider the following to minimize the potential for hindsight securities fraud claims based on tariff-related risk disclosures in corporate filings and other public statements:

• Temper earnings expectations. Consider whether tariff and customs-related cost increases have put heightened pressure on income, revenue, and profit expectations. If the potential impact is calculable, companies should factor that impact properly into statements regarding expected earnings. If the potential impact is not calculable but is reasonably likely to have a material effect on sales, revenue or income, appropriate risk disclosures should be made.
   
• Focus on key factors from the investor perspective. Dividends, stock buybacks, and mergers and acquisitions are concrete metrics that draw significant media coverage and analysts' attention. Ensure that high-visibility corporate acts are scrupulously reviewed and materiality of the impact of tariff uncertainties is properly addressed or recognized as an unmeasurable risk.
   
• Check risk disclosures. Item 303 is the catch-all for risks that are not capable of sufficient qualitative or quantitative assessment. When assessing whether a risk is "reasonably likely" to have a material impact, companies should consider the risk holistically and not rely on any particular metric of reasonableness or quantitative materiality standard.
   
• Closely follow tariff developments. Trump’s tariffs have shifted without warning and often without clarity of the scope of applicability. Implement or expand existing procedures to stay aware of ongoing tariff developments. Ensure that management and directors are provided regular updates that fully and expeditiously address the risks associated with tariff-related policy.
   
• Consult with counsel. Stay in touch with outside counsel that has experience in tariff-related issues to obtain skilled legal advice relevant to the business operations and associated business risks. SEC disclosure counsel should carefully review the company’s internal controls over financial reporting with the assistance of the company’s independent public auditor. Outside counsel can help analyze and mitigate the potential for fraud-based investor litigation against companies facing tariff-related headwinds.

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