TheCorporateCounsel.net

Last week, in New England Carpenters v. DeCarlo, (2d. Cir., 8/23), the Second Circuit held that CEO & CFO certifications in Exchange Act filings were statements of opinion, and that securities fraud claims premised on those statements had to satisfy the Omnicare pleading standard in order to be actionable. This Proskauer blog summarizes the Court’s reasoning on this aspect of the decision:

The court held that the certifications “signal that they are opinions by stating that they are ‘based on [the] knowledge’ of the officer,” and “there is no allegation that the opinion is actionable on the ground that it was not based on the officer’s knowledge.” The court rejected plaintiffs’ contention that the officers had known that the financial reports were false, misleading, or noncompliant with GAAP; it also held that plaintiffs had not pled facts establishing “a lack of meaningful inquiry, other than the fact that the certification turned out to be wrong.” Nor did AmTrust’s change of its accounting opinion (through the restatement) “mean that the original certified opinions were disingenuous.”

While the blog says that the decision is good news for signers of Sarbanes-Oxley certifications since it makes it clear that the Court views them as expressions of opinion, it cautions that the opinion defense will not be available if the signer knew that the certification was incorrect.

– John Jenkins