September 20, 2024
Forward-Looking Statements: How to Use Legends (Plus When, Where & Why)
I highly recommend this Venable alert for folks looking for some education (or a thorough refresher) on the available safe harbors for forward-looking statements. For junior securities lawyers, it may even help you understand why we do some of the weird things we do in legends & disclaimers! It starts with a detailed review of Securities Act Rule 175, Exchange Act Rule 3b-6, the PSLRA and the bespeaks caution doctrine, including when each safe harbor or defense is available and how to invoke it. For example, on the PSLRA, the alert has this table summarizing the issuers, transactions and circumstances where the PSLRA safe harbor won’t apply:
Excluded Issuers | Excluded Transactions and Circumstances |
“Bad actor” issuers | IPOs |
Penny stock issuers | Offerings of securities by blank check companies [for the PSLRA, this now includes SPACs] |
Investment companies | Roll-up transactions |
Partnerships | Going private transactions |
Limited liability companies | Tender offers |
Direct participation investment programs | Financial statements prepared in accordance with GAAP* |
Section 13 filings |
*Hidden in a footnote to this table is a reminder of something I frequently reiterated to clients: “Issuers should take care to locate forward-looking statements in MD&A rather than notes to financial statements, and when, as is common, similar disclosure is contained in both MD&A and financial statements notes, to remove any forward-looking statements from the notes.”
Here are some of the alert’s suggestions for crafting PSLRA safe harbor legends:
Avoiding misuse of the PSLRA safe harbor legend. While it might seem straightforward, it is crucial to avoid the inclusion of the PSLRA safe harbor language in documents or oral presentations that do not contain forward-looking statements. This practice, though it may not directly affect the specific document, can lead to allegations that the issuer is not meaningfully employing the PSLRA safe harbor, thus potentially exposing unrelated statements to vulnerability under “boilerplate” attacks.
Hyperlink the legend if the media does not permit its inclusion. When social media platforms or other media limit the number of symbols or otherwise render the inclusion of a PSLRA safe harbor legend impossible or impractical, the legend should be prominently provided through an active hyperlink. Although this practice has not been expressly blessed by the SEC, we do not see the reason why the SEC would oppose this, especially considering the analogous approach permitted with Rule 134 legends. While the legend can be included in a series of sequential posts (for instance, on X), a hyperlink will better ensure that the legend will be attached to the statement in case of reposting or other dissemination, which will not be the case with sequential messages. Issuers may choose to combine both methods—sequential messaging and hyperlinks—if they find it does not compromise the aesthetic qualities of the message.
Format and timing of the PSLRA legend may potentially render the legend meaningless. Logistical planning for announcing PSLRA legends is essential. For instance, if forward-looking statements are intended only for a Q&A session following a formal adjournment of an annual meeting, it may be inappropriate to announce the safe harbor legend before the meeting begins or state in such legend that oral forward-looking statements will take place during the annual meeting. Additionally, for unscripted speeches, clearly defining the topics to be discussed beforehand allows for the crafting of the safe harbor language in a meaningful way, ensuring the legend identifies relevant risks without being overly broad or generic.
The alert has many more tips related to PSLRA legends & forward-looking disclosures. We’ve posted this in our “Forward-Looking Information” Practice Area.
– Meredith Ervine
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