US Supreme Court Ruling May Limit Certain Liability for Statements of Opinion in SEC Registration Statements
26th March 2015
The U.S. Supreme Court reversed and remanded a Sixth Circuit ruling on Tuesday that executives can be held responsible for opinions expressed to investors that ultimately turn out to be false. In its’ March 24, 2015 opinion in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, the U.S. Supreme Court set aside the Sixth Circuit’s ruling that allegations of “objective falsity” were sufficient to make a statement of opinion in securities offering documents actionable. The Court remanded the case to the lower court to consider whether the plaintiffs had sufficiently alleged that facts had been omitted from such opinion so as to make the statement of opinion misleading, in light of the entire context.
Opinions presented in these registration statements filed with the SEC can be subject to Section 11 liability if the opinion was not genuinely held, or the registration statement omitted material facts about the issuer's inquiry into, or knowledge about the opinion. In either case, the buyer does not need to prove that the issuer acted with any intent to deceive or defraud.
The decision addresses an ongoing and current split in the Federal Circuit courts. While the Second, Third, and Ninth Circuits agreed that the plaintiff must allege whether the opinion was both objectively and subjectively false, in Omnicare, the Sixth Circuit found that if a defendant "discloses information that includes a material misstatement [even if it is an opinion], that is sufficient and a complaint may survive a motion to dismiss without pleading knowledge of falsity."
The Supreme Court rejected both positions and authorized a middle ground approach. Although the Court struck down the Sixth Circuit’s objective standard, it also provided a new basis for opinion liability in the Second, Third, and Ninth Circuits, the Circuits where most security class actions are filed.
By: Ray Moss
In:
Corporate Finance & Securities