Document Type

Article

Abstract

This Amicus Brief was filed on behalf of more than 20 law and business faculty in a case arising under Section 11 of the Securities Act of 1933. The issue framed by the parties sought to define the test for establishing the falsity of an opinion that was not subjectively believed. The statement at issue involved representations that contracts were legally valid. The Brief took the position that the statement was not an opinion. A representation about the legal validity of contracts, like other matters of present fact, can be false on the date made. Nonetheless, a speaker may express an opinion or belief with respect to present facts. An opinion in these circumstances conveys uncertainty or doubt as to the accuracy of the representation. Where, however, the speaker possesses information establishing the plain invalidity of the stated facts, the requisite uncertainty does not exist. Nor does the issuer create uncertainty by adding the words “[w]e believe” to the statement. Allowing an issuer to escape liability for untrue statements of present fact in a registration statement by treating them as beliefs or opinions contradicts the statutory framework set out in, and policies underlying, Section 11. See 15 U.S.C. §77k. Under the provision, issuers are assigned unique responsibility for ensuring the accuracy of a registration statement. Insiders and underwriters are permitted to avoid liability for a false representation where they “believe” that the facts in the registration statement are accurate. Issuers, in contrast, are held to a standard of liability that is “virtually absolute. . . .” Herman & MacLean, 459 U.S. at 382. They are specifically denied the right to raise as a defense to a Section 11 claim alleging a misrepresentation or omission of material fact that they “believe” otherwise. Permitting a statement about the validity of contracts to be treated as a belief or opinion when the issuer possesses information to the contrary fundamentally alters this regulatory scheme. If such treatment is judicially validated, issuers will be able to rely on a litigation strategy that Congress sought to foreclose in denying issuers the right to resort to a reasonable belief defense under Section 11. Moreover, the approach effectively introduces into Section 11 a state of mind requirement. Purchasers required to establish a subjective disbelief as to present facts will be obligated to present evidence similar to that needed to demonstrate scienter. The Brief also asserted that, to the extent the Court treated the statements at issue as opinions, the standard for determining falsity was not “answered” by the decision in Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991). The Brief agreed with the position taken by the Government in its Amicus Brief that opinions sincerely held may nonetheless be false if they lack reasonable basis, a longstanding and familiar test widely used under the federal securities laws. Lower courts and the common law also recognize that an opinion may be false where the maker possesses undisclosed facts that contradict the accuracy of the statement.

First Page

i, 1, App. 1

Last Page

vii, 23, App. 3

Publication Date

9-12-2014

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