TheCorporateCounsel.net

Earlier this year, Tulane law prof Ann Lipton blogged about an SDNY opinion that declined to impose liability for statements by the pre-merger target, about the pre-merger target when neither of the plaintiffs purchased shares of the pre-merger target. Ann notes that this decision was the natural result of Menora Mivtachim Insurance Ltd. v. Frutarom Industries Ltd., (2d. Cir.; 9/22), which John blogged about on DealLawyers.com.

In her latest post, Ann addresses a May opinion regarding Section 10(b) claims in In re Mylan NV Sec. Litig., (W.D. Pa. 5/23). Unlike Frutarom and related cases, this decision didn’t involve statements about one company that impacted trading in a different company, but the district court nonetheless held that the statements on the defendant’s general public-facing website were not made “in connection with” the purchase or sale of a security. Ann quotes the decision to show the court’s reasoning:

After careful consideration, the Court concludes that the statements from Mylan’s website are not the type of statements upon which a reasonable investor would rely. To start, the alleged misstatements appeared on Mylan’s general website, not its investor-relations page. While certainly not dispositive, this fact suggests that investors visiting Mylan’s website would view the information contained on the separate investor-relations page to have more value to them, since it was specifically targeted to them. The information on the other pages within Mylan’s website drives this point. These other pages included things like descriptions of products, general statements about safety and quality, and narratives regarding the company’s history.

But this is not how public companies and their securities lawyers operate!  We worry about antifraud liability for general website statements, product launch announcements, and even statements made in a Code of Conduct — and for good reason. More from Ann:

[I]n In re Carter-Wallace Sec. Litig., 150 F.3d 153 (2d Cir. 1998), the Second Circuit held that even product advertisements in medical journals might be relied upon by investors, and since then, courts have generally accepted that all public statements by a company, no matter where they appear, were fair game for fraud on the market cases.

The SEC has specifically warned companies that their general websites might be relied upon by investors as sources of information.  See Commission Guidance on the Use of Company Websites, 73 Fed. Reg. 45862 (Aug. 7, 2008) (“companies should be mindful that they ‘are responsible for the accuracy of their statements that reasonably can be expected to reach investors or the securities markets regardless of the medium through which the statements are made, including the Internet.’ Accordingly, a company should keep in mind the applicability of the antifraud provisions of the federal securities laws, including Exchange Act Section 10(b) and Rule 10b-5, to the content of its Web site.”).

In fact, the “without merit” case I also blogged about today involved actionable statements in a Code of Conduct. Here’s Kevin LaCroix’s reminder:

Securities class action plaintiff’s counsel routinely scour corporate expressions of purpose, of conduct, or of ethics, to try to find statements that are contrary to subsequent corporate conduct, in order to try to support allegations that the statements misled investors. Court’s often reject these kinds of allegations on the grounds that the statements are expressions of aspiration rather than concrete commitments of corporate conduct. However, in this case, Judge Young rejected the defendants’ arguments that the Code of Conduct statements were merely aspirational; the statement he found stated with specificity the conduct the company foreswore, while engaging in precisely the foresworn conduct.

So we will keep on keeping on — worrying about antifraud liability everywhere and flagging absolute statements in public policy documents.

– Meredith Ervine