In a decision released on March 24, 2015, the U.S. Supreme Court provided an expansive interpretation of the liability provisions of Section 11 of the Securities Act of 1933. The Court explained that liability can arise where a registration statement omits material facts about the issuer’s inquiry or knowledge that form the basis of an opinion statement, and where those facts conflict with how a reasonable investor would interpret that statement.

In Omnicare, Inc., et al. v. Laborers District Council Construction Industry Pension Fund et al., the plaintiffs, purchasers of the company’s securities, alleged that the company made statements in its 2005 registration statement regarding its “legal compliance” that were materially misleading or omitted material information because the company was engaged in illegal activities. These alleged activities included kickback agreements with pharmaceutical manufacturers and submission of false claims to Medicare and Medicaid. Creating a split with the Second and Ninth Circuits, the Sixth Circuit held that plaintiffs did not need to plead that the issuer had knowledge of falsity to state a claim under Section 11. The U.S. Supreme Court granted certiorari to determine whether a corporation needs a “reasonable basis” for opinions in its SEC registration statement.

The Court first held that statements of opinion are just that, opinion and not fact. Merely being wrong about an opinion does not give rise to misrepresentation liability. The Court, however, left some room for plaintiffs holding that a statement of opinion can be misleading to a reasonable investor, even where the statement is literally accurate. This occurs where an opinion statement conveys false information about how the speaker formed that opinion. The Court offered several examples of this type of conduct, including where an issuer makes the opinion statement “We believe our conduct is lawful,” but has never consulted an attorney; where an opinion statement is made in contradiction to an attorney’s advice; or, where the issuer has knowledge that the federal government has taken the opposite view.

As the Court explained, a reasonable investor “expects not just that the issuer believes the opinion (however irrationally), but that it fairly aligns with the information in the issuer’s possession at the time.” However, the Court emphasized that its holding does not necessarily mean that opinion statements are misleading where the issuer knows of facts that cut the other way, as a reasonable investor is aware that not every fact known to an issuer supports an opinion statement. Similarly, whether the expression of an opinion is misleading depends on context, including other information provided in the registration statement. Moreover, in making such a claim, a plaintiff must make more than conclusory assertions and must identify particular and material facts going to the basis of the issuer’s opinion (facts about the inquiry the issuer did or did not conduct and the knowledge it did or did not have) which make the opinion statement misleading.

Consequently, whether liability arises under Section 11 for a misleading opinion is a multistep inquiry. A court must first determine whether the registration statement omits material facts about the issuer’s inquiry or knowledge that form the basis of an opinion statement. If so, the court must determine whether those facts are material to a reasonable investor reading the opinion statement. Lastly, the court must determine whether the alleged omission renders the opinion statement misleading to a reasonable investor, considering the context in which the statement was made.

The conclusion to be drawn is that so long as the opinion is stated as such and has a reasonable basis it is likely that plaintiffs will not be able to plead successful claims.

Attorneys in Ballard Spahr’s Securities Enforcement and Litigation Group represent clients in investigations, regulatory proceedings, and litigation involving the Securities and Exchange Commission, state attorneys general, and state securities regulators. For more information, please contact M. Norman Goldberger at 215.864.8850 or

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