It may have been too much to expect that the U.S. Supreme Court would grant cert in two securities litigation cases within the span of a year. Having just addressed the issue of loss causation, the court has passed on the opportunity to interpret the PSLRA’s safe harbor for forward-looking statements.
The PSLRA created the safe harbor to encourage companies to provide investors with information about future plans and prospects. Under the first prong of the safe harbor, a defendant is not liable with respect to any forward-looking statement if it is identified as forward-looking and is accompanied by “meaningful cautionary statements” that alert investors to the factors that could cause actual results to differ.
As discussed in a post in The 10b-5 Daily from last August, entitled “The Safe Harbor May Just Be A Safe Puddle,” the U.S. Court of Appeals for the Seventh Circuit has weakened the protection afforded by the safe harbor. In Asher v. Baxter Int’l, the court found that it may be impossible, on a motion to dismiss, to determine whether a company’s cautionary statements are “meaningful.” Prior to this decision, however, numerous courts had dismissed cases pursuant to the first prong of the safe harbor. The defendants petitioned for a writ of certiorari to the Supreme Court to address the circuit split.
Quote of note: “Numerous business groups filed legal briefs in support of Baxter with the Supreme Court urging review of the case. The Business Roundtable, in its brief, argued that the 7th Circuit decision could affect how public companies across the country handle disclosures. ‘The ramifications of the decision below could be enormous,’ it wrote, adding that companies ‘may choose to avoid making forward-looking disclosures rather than risk lawsuits like this one.'”