The Supreme Court heard arguments Monday in a lawsuit challenging whether investors have a legal case if a securities registration statement contains opinions that could be considered misleading.
Section 11 of the Securities Act of 1933 creates a cause of action when a registration statement contains misleading or omitted facts, but does not require proof of wrongdoing. In Omnicare Inc. vs. Laborers District Council Construction Industry Pension Fund et al., the 6th U.S. Circuit Court of Appeals said the pension fund had a case, but Omnicare petitioned the Supreme Court to weigh in on what plaintiffs have to plead and prove when filing such cases.
After reaching settlements resolving allegations of kickbacks, the pharmaceutical services firm was sued by the pension fund, which claimed Omnicare misled investors in its registration statement for an initial public offering. Since then, lower courts have disagreed on whether such statements are challengeable facts or simply subjective opinions.
The decision, which is expected in early 2015, is being closely watched by securities issuers, because “it makes Section 11 a particularly powerful weapon to brandish,” said Josh Yount, a partner in the law firm Mayer Brown.
“The issue is whether an honestly stated belief can be the basis” for legal action, said attorney Joseph Palmore with Morrison & Foerster. “That kind of second-guessing is a concern to issuers.”
Several justices appeared to support the government’s argument presented to the court by Nicole Saharsky, assistant to the solicitor general, that “the answer lies in the middle.” While a plaintiff has the burden to prove that facts were omitted in such statements, “Congress did not limit liability to statements that are literally true or false,” she said.