Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, January 24, 2010

SEC States its Views on Safe Harbor for Forward-Looking Statements

The SEC filed an amicus brief at the invitation of the Second Circuit in Slayton v. American Express Co., setting forth its views on certain issues relating to the safe harbor for forward-looking statements in PSLRA.  The litigation involves certain statements made in the Management’s Discussion and Analysis
(“MD&A”) section of the May 2001 Form 10-Q filed by American Express Company regarding losses in the high-yield investments of Amex subsidiary American Express Financial Advisors.

Among the issues is the question of what constitutes "actual knowledge" under Section 21E(c)(1)(B)(i).  According to the SEC:

a finding of “actual knowledge” requires more than recklessness or a reckless disregard for a substantial risk that a forward-looking statement is false or misleading. A statement of prediction or expectation, like Amex’s statement that “losses . . . are expected to be substantially lower,” contains at least three implicit factual assertions, including (i) that the statement is genuinely believed; (ii) that there is a reasonable basis for that belief; and (iii) that the speaker is not aware of any undisclosed facts tending to seriously undermine the accuracy of the statement. If the speaker actually knows that any of the implicit representations is false, then the speaker knows that the statement is misleading.

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