It's not exactly that they're legally required to list every imaginable risk -- it's that listing a risk gives their future trial counsel a useful sound bite.
Suppose that the company were to miss earnings targets, and the stock price dropped as a result. Just as sure as shootin', there will be plaintiffs' lawyers claiming that the company wrongfully failed to disclose Risk X or Risk Y or Risk Z. Proactively disclosing every risk you can imagine is thought to be one way of combatting that plaintiffs' bar strategy.
Personal anecdote: I used to be the general counsel of a public software company. I had to draft the risk-factors section of our Form 10-K annual report, which likewise is filed with the SEC. The first time I did it, I read a lot of other software companies' S-1s and 10-Ks and harvested as many risk-factor ideas as I could.
It struck me as peculiar to proceed as if investors were utterly ignorant of basic facts of business life. But many jurors, and even some judges, might fall into that category. You can pretty much count on having a plaintiff's lawyer, professing to be outraged, accusing your company of having covered up Risk X. In responding to such an accusation, it's a whole lot easier (A) to be able simply to point to your public disclosure of Risk X, and possibly get the case dismissed early, without an extremely-expensive and risky trial, than it is (B) to have to try to convince the judge or jury that, well, no, you didn't disclose Risk X, but it doesn't matter because everyone supposedly knew about Risk X already. Option B can be a real roll of the dice; far better to go with Option A.
Suppose that the company were to miss earnings targets, and the stock price dropped as a result. Just as sure as shootin', there will be plaintiffs' lawyers claiming that the company wrongfully failed to disclose Risk X or Risk Y or Risk Z. Proactively disclosing every risk you can imagine is thought to be one way of combatting that plaintiffs' bar strategy.
Personal anecdote: I used to be the general counsel of a public software company. I had to draft the risk-factors section of our Form 10-K annual report, which likewise is filed with the SEC. The first time I did it, I read a lot of other software companies' S-1s and 10-Ks and harvested as many risk-factor ideas as I could.
It struck me as peculiar to proceed as if investors were utterly ignorant of basic facts of business life. But many jurors, and even some judges, might fall into that category. You can pretty much count on having a plaintiff's lawyer, professing to be outraged, accusing your company of having covered up Risk X. In responding to such an accusation, it's a whole lot easier (A) to be able simply to point to your public disclosure of Risk X, and possibly get the case dismissed early, without an extremely-expensive and risky trial, than it is (B) to have to try to convince the judge or jury that, well, no, you didn't disclose Risk X, but it doesn't matter because everyone supposedly knew about Risk X already. Option B can be a real roll of the dice; far better to go with Option A.