In a Supreme Court case involving the contours of
liability under Section 11 of the Securities Act, the SEC filed an amicus
brief contending that a statement of opinion is actionable under
Section 11 if it lacked a basis that was reasonable under
the circumstances, even if it was sincerely held. The Commission rejected the
assertion that a statement of opinion is
actionable under Section 11 only if it is not sincerely held, on the theory
that the only fact expressly stated by the opinion is that the speaker holds
that opinion. The SEC said that this
view overlooks that Section 11 applies to both misstatements and omissions.
Section 11 creates an express cause of action for a registration statement that
contained an untrue statement of material fact or omitted to state a material
fact necessary to make the statements not misleading. Omnicare,
Inc. v. Laborers District Council Construction Industry Pension Fund, Dkt. No. 13-435.
The Court took the case on appeal from the Sixth
Circuit to answer the question of whether in a Section 11 action a plaintiff
who seeks to impose liability for a statement of opinion in a registration
statement and who alleges that the
opinion lacks a reasonable basis must also allege that the maker of the
statement did not subjectively hold that opinion. The SEC said that, since an
opinion can be misleading either because it is insincere or because it lacks
foundation, the Sixth Circuit correctly held that a Section 11 plaintiff need
not allege that the defendant disbelieved the opinion. But, continued the SEC,
the appeals court erred in suggesting that a statement of opinion is actionable
whenever it is ultimately proved incorrect.
Section 11 liability should be determined based on the facts at the
time the statement was made, said the
Commission, not at a later time.
The SEC asserted that imposing Section 11 liability
for statements of opinion that are not genuinely held or lack a reasonable
basis furthers Congressional intent and fulfills the purposes of the Securities
Act, which focuses on disclosure to investors.
The registration statement plays a foundational role, continued amicus, it must be filed before any
security can be sold and, if it contains any material misrepresentations or
omissions, the SEC may prevent the sale of the security and a purchaser of the
security may sue for damages.
In enacting Section 11, Congress built on common law
principles to create a far-reaching cause of action under which liability could
be imposed for misstatements and omissions. Congress dispensed with proof of scienter, reliance,
and causation and allowed only limited affirmative defenses once it was
established that a registration included a material misstatement or
omission. In the SEC’s view, the
imposition of liability for a statement of opinion that is not genuine or that lacks a reasonable basis is
consistent with this scheme because it ensures that registration statements are
both literally true and do not omit information that would matter to a
reasonable investor. The Commission has consistently recognized that a genuinely held statement of opinion
may be materially misleading when it lacks a reasonable basis.