False Statements of Belief as Securities Fraud

Abstract

This essay analyzes the potential for a false statement of belief to be actionable as a false statement of fact under § 10(b) and Rule 10b-5. In Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), the Court charted a new course for opinions actionable under § 11 of the Securities Act, but it is an open question whether Omnicare’s teachings apply equally to opinions actionable as securities fraud. In addition, the elements of scienter, materiality, reliance, and loss causation pose unique analytical challenges when applied to false statements of belief. Against this backdrop, this essay argues: (1) Omnicare’s test for distinguishing statements of fact from statements of opinion applies equally to securities fraud actions; (2) post-Omnicare, statements of opinion must be both disbelieved by the speaker and inaccurate in order to be actionable as false statements of fact under § 10(b) and Rule 10b-5; (3) the element of scienter is subsumed into the aforementioned disbelief requirement; (4) the materiality of a false statement of belief depends on (a) whether the subject matter addressed in the opinion would be important to a reasonable investor, and (b) whether the speaker’s expression of belief conveys meaningful information to a reasonable investor about the likelihood that the subject matter is accurate; and (5) disclosure of the truth about the matter addressed in the opinion (even if such disclosure does not admit the speaker’s prior disbelief) constitutes disclosure of the “truth” for the purposes of measuring price impact and demonstrating loss causation.

Note: Copyright 2015 by Thompson Reuters. All rights reserved. Reprinted by permission of Thompson Reuters/West from Securities Regulation Law Journal.

Keywords: Securities Fraud, Opinions, Omnicare

JEL Classification: K22