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If you’ve ever worked on a public offering, you know that as part of those transactions issuer’s and underwriters’ counsel routinely provide a statement in their closing opinions to the effect that nothing has come to their attention that would lead them to believe that the prospectus contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. This statement is sometimes referred to colloquially as a “10-5 letter” or even a “10b-5 opinion”, but a recent New York trial court decision provides a reminder that a 10b-5 letter isn’t a legal opinion, and that some pretty significant consequences result from that conclusion.

In Camelot Event Driven Fund v. Morgan Stanley, (NY Cty.; 9/24), the plaintiff sought discovery of materials provided by the underwriters to their counsel in connection with that counsel’s 10b-5 opinion. In rejecting the defendants’ efforts to avoid producing those documents, the Court observed:

Because the 10b-5 letter is not legal advice or a legal opinion, the documents delivered to [underwriters’ counsel] (and both the written and oral communications with [such counsel]) for the purpose of obtaining the 10b-5 letter were not delivered to or had with [underwriters’ counsel] for the purpose of obtaining or facilitating legal advice. They are thus not privileged and must be produced. Stated differently, the facts and communications that the defendants chose to have [underwriters’ counsel] review and rely on (or not rely) on for the purposes of the 10b-5 letter are validly within the purview of discovery and are not privileged because they are given for the purposes of a business document needed for the transaction and not for the purpose of obtaining a legal opinion or legal advice.

The Court went on to say that non-privileged facts that were communicated from the underwriters to underwriters’ counsel in connection with the preparation of the 10b-5 letter did not become privileged on that basis, and the plaintiff was entitled to “fulsome discovery” concerning information that was disclosed to or withheld from counsel for that purpose. However, the Court said that the plaintiff was not entitled to ask underwriters’ counsel to disclose why the underwrites chose to disclose or not disclose certain facts for purposes of the 10b-5 letter, because that information was privileged.

– John Jenkins