June 3, 2022

Projections: How Safe is the FLS Safe Harbor?

According to a recent blog from Doug Greene, the SEC’s proposal to eliminate SPACs’ ability to rely on the safe harbor for forward looking statements in connection with deSPAC transactions may not turn out to have much impact in practice. Why? Because, as this excerpt explains, the PSLRA’s safe harbor for forward looking statements simply isn’t very protective to begin with:

Public companies understandably believe that the Reform Act’s safe harbor protects them from liability for their guidance and projections if they simply follow the statute’s requirements. But, as a practical matter, the safe harbor is not so safe; some judges think the Reform Act goes too far, so they go to great lengths to avoid the statute’s plain language. This is one significant reason why we always have advocated an approach to defending forward-looking statements that does not depend solely on the safe harbor, even when the statute’s plain language would indicate that it applies. Thus, while SPACs and de-SPACs are certainly better off with the safe harbor than without it, its loss should not be as consequential as some may think.

The blog reviews the erratic approach that courts have taken to the safe harbor, and argues that it may stem from judges’ disdain for the potential “license to lie” that the statutory language provides. It goes on to point out that in defending claims implicating forward looking statements, the parties should keep in mind that these also involve opinions, and therefore, regardless of the safe harbor, plaintiffs also must satisfy the Virginia Bankshares & Omnicare tests in order to bring securities fraud claims based on those statements.

John Jenkins