A new Supreme Court ruling covers what companies can say, in particular about their own status and prospects, when they are selling stock to the public. This is important because if they mislead potential investors, lots of money can be made or lost. The case is Omnicare v. Laborers District Council Construction Industry Pension Fund.
In this case, the
issue revolved around opinions versus facts and errors of commission versus
errors of omission. And what the
Justices decided is that companies can say any opinion they have. But they are not allowed to omit and relevant
factual information that might go with it.
So for example, they can say that they “believe their new product will
dominate the market” as long as there is no evidence (beyond reasonable doubt)
that they don’t really believe this. And according to the reports I have read, it
is virtually impossible to prove that someone did not believe a subjective opinion
like this.
BUT, here is the
key. If there is evidence to the contrary,
such as an internal market research study, they are not permitted to keep this
quiet. So what they would have to say is
that they “believe their new product will dominate the market, although
our market research has some data suggesting otherwise.” Or “we believe that we will will the lawsuit
against us, despite the fact that our attorneys are not so sure.” Or whatever.
Lawsuits will still be common because there can be disputes
about whether a fact is relevant enough to be required or how companies link
the two together. For example if a third
party market research study, funded by an independent organization, says their
product may not be dominant, do they have to include that? And what if they “include” it by using a very
small superscript with a footnote that references the study but not linked in
any way?
There might be more complete details about these latter
nuances in the full opinions (there were two – seven Justices gave the main
ruling and two combined on a concurring opinion). But it is the main distinction that I thought
was interesting.
·
You can provide facts, but you can’t omit them
or lie about them. And you don’t have to
give your subjective opinions about them.
·
You can give your subjective opinion almost
without scrutiny, but only if you also give relevant facts.
This is new law.
Before, there was no legal requirement to include any relevant facts as
long as you were presenting an opinion.
The only problem was if your opinion turned out to be wrong – and then
you could be sued. Now, you can be sued
for the omission, but not for the future counterevidence. This makes sense because companies should not
be presenting opinions where they have related counterevidence without at least
warning investors about it. But they also shouldn’t be held liable if they have
an opinion and where they have no related counterevidence at the moment, even
if some later emerges.
