WASHINGTON, DC.— The Washington Legal Foundation (WLF) today urged the U.S. Supreme Court to overturn an appeals court decision that authorizes imposition of securities fraud liability on corporate officials who express genuinely believed statements of opinion. In a brief filed in support of a corporation that told the SEC it believed that it was operating in compliance with all federal laws, WLF argued that a corporation may not be held liable for a statement of opinion simply because others later deem the opinion to have been unwarranted.
Section 11 of the Securities Act of 1933 provides a private remedy for a purchaser of securities under a registration statement filed with the SEC, if the statement contains an “untrue statement of a material fact.” The appeals court held that the speaker’s state of mind is irrelevant in an action filed under § 11 (which contains no scienter requirement) and that a plaintiff can demonstrate the falsity of a statement of opinion merely by demonstrating that the opinion was objectively wrong. WLF argued, to the contrary, that plaintiffs cannot prevail unless they show that the speaker did not believe the opinion he expressed, because only on that basis could a statement of opinion ever be deemed “untrue.” It urged the Court to apply that same understanding of opinion statements to all the federal securities laws.
WLF argued that while corporations are properly held accountable when stock purchasers act in reliance on false and material information disseminated by the corporation, a purchaser readily understands that statements of opinion generally do not convey factual information on which they can rely—other than that senior company officials genuinely believe the opinions expressed. WLF filed its brief with the pro bono assistance of Douglas W. Greene and Claire Davis, attorneys with the Seattle office of Lane Powell P.C. After filing the brief, WLF issued the following statement by Chief Counsel Richard Samp:
“Shareholders will be harmed by a rule that deters public companies from openly sharing their opinions. Such opinions provide shareholders with valuable information about the company’s business and financial condition. By exposing corporate actors to liability whenever their subjective judgments are later determined to be ‘wrong,’ the appeals court’s decision harms the very shareholders that the plaintiffs’ bar claims to be serving.”
WLF is a public interest law firm and policy center that regularly litigates in support of tort reform, to ensure that the costs of unwarranted lawsuits do not drive up costs for all consumers.