October 1, 2010

Line Drawing

It has been several years since the Second Circuit has addressed the scope of the bespeaks caution doctrine. The bespeaks caution doctrine holds that a "forward-looking statement accompanied by sufficient cautionary language is not actionable because no reasonable investor could have found the statement materially misleading." In Iowa Public Employees' Retirement System v. MF Global, Ltd., 2010 WL 3547602 (2d Cir. Sept. 14, 2010), the Second Circuit found that the district court had failed to properly sever the forward-looking and non-forward-looking aspects of the alleged misstatements. Accordingly, the case was remanded for further analysis.

Quote of note: "A forward-looking statement (accompanied by cautionary language) expresses the issuer's inherently contingent prediction of risk or future cash flow; a non-forward-looking statement provides an ascertainable or verifiable basis for the investor to make his own prediction. The line can be hard to draw, and we do not now undertake to draw one. However, a statement specifying the risk of default is distinct from a statement of present or historical financial instability, even though they both bear upon the same risk. And a statement of confidence in a firm's operations may be forward-looking - and thus insulated by the bespeaks-caution doctrine - even while statements or omissions as to the operations in place (and present intentions as to future operations) are not."

Posted by Lyle Roberts at October 1, 2010 8:22 PM | TrackBack
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