August 5, 2014
The Tenth Circuit issued an opinion in MHC Mutual Conversion Fund, L.P. v. Sandler O’Neill & Partners, L.P. et al. (No. 13-1016 Aug. 1, 2014). The case concerns a 2009 stock offering by Bancorp. Bancorp was significantly exposed to mortgage-backed securities (MBS) and said as much in its securities filings. It also predicted that the market for MBS would rebound soon.
The highly readable opinion asks,
When does section 11 of the Securities Act of 1933 impose liability on issuers who offer opinions about future events? The statute prohibits companies from making statements that are false or misleading. Establishing that an opinion about the future failed to pan out in the end may go some way to meeting that standard but it doesn’t go all the way. After all, few of us would label a deeply studied, carefully expressed, and earnestly held opinion about the future as false or misleading at the time it’s made simply because later events proved it wrong. To establish liability for an opinion about the future more is required. But what? Answering that question is the challenge posed by this case.
The opinion provides a clear overview of what differentiates opinion from fact in securities offering statements. The Court does this by carefully walking through three theories of opinion liability under section 11:
- “no one should depend on the puffery of salesmen . . . especially when the salesman’s offering a guess about the future” (5-6)
- “an opinion can qualify as a factual claim by the speaker regarding his current state of mind.” (7)
- “some subset of opinions about future events contain within them an implicit factual warranty that they rest on an objectively reasonable basis” (13)
In this case, the Court found that the plaintiffs could not establish liability under any theory.
The opinion provides a nice, clean framework for understanding section 11 liability claims. This framework should apply to offering statements for MBS that set forth opinions about future events as well as those for any other type of security that does the same.| Permalink