US Supreme Court clarifies liability standard under Section 11 of the Securities Act of 1933 for statements of opinion in registration statements

Abstract

Purpose

The purpose of this article is to examine the US Supreme Court’s much anticipated decision in Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund. In this 2015 case, the Supreme Court announced important principles for interpreting the application of the two bases for liability under Section 11 of the Securities Act of 1933 to statements of opinion expressed in registration statements filed with the Securities and Exchange Commission in connection with public securities offerings.

Design/methodology/approach

The article examines the Supreme Court’s articulation of the standards federal courts must apply under Section 11 to determine if opinion statements were untrue statements of a material fact or misleading because they omitted material facts necessary to make the statements of opinion not misleading. The paper identifies a number of the complexities involved in the Supreme Court’s approach and emphasizes the nuanced assessment of the facts surrounding opinion statements courts will be required to undertake by Omnicare.

Findings

The Omnicare decision has significant implications for the litigation of Section 11 claims challenging statements of opinion and for the preparation of registration statement disclosures. The Omnicare decision dramatically alters the standards for reviewing Section 11 claims premised on opinions long applied in a number of US federal appellate circuits. The decision is likely to result in more Section 11 claims based on supposedly misleading opinion statements, and potentially in a greater number of Section 11 claims that survive at least an initial motion to dismiss. Omnicare highlights the importance of including in registration statement disclosures meaningful cautionary statements identifying important facts that could cause actual outcomes to differ materially from views expressed in an opinion.

Originality/value

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Citation

Parrino, R., Schwab, D. and Wertheimer, D. (2015), "US Supreme Court clarifies liability standard under Section 11 of the Securities Act of 1933 for statements of opinion in registration statements", Journal of Investment Compliance, Vol. 16 No. 3, pp. 37-42. https://doi.org/10.1108/JOIC-06-2015-0039