Securities — Bespeaks Caution vs. Duty to Update — 2d Circuit

From Ill. State Board of Inv. v. Authentidate Holdings Corp., 2010 U.S. App. LEXIS 5226 (2d Cir. Mar. 12, 2010) (summary order):

The district court found the statement in the September 8 press release nonactionable, in part, because Authentidate noted that there was "no guarantee" that an agreement would be reached. We agree that the statement is nonactionable, although we rely on the "bespeaks caution" doctrine, which was not cited by the district court.

[Footnote] 2 To the extent that the court dismissed this claim because it found that, even without the "bespeaks caution" defense, Authentidate was never under a duty to update the statement in the September 8 press release, we disagree. Although this Court has found that there is "no need to update when the original statement was not forward looking and does not contain some factual representation that remains 'alive' in the minds of investors as a continuing representation," In re Int'l Bus. Machs. Corp. Sec. Litig., 163 F.3d 102, 110 (2d Cir. 1998), the statement that "an agreement amending the original metrics will be completed shortly" was clearly forward-looking and was likely to remain "alive" in the minds of reasonable investors. Rather than being a "vague statement[] of optimism," id., the September 8 statement is "the sort of definite positive projection[]" that this Court has found "require[s] later correction" when intervening events render it misleading, Time Warner, 9 F.3d at 267.

The [bespeaks caution] doctrine renders certain forward-looking statements "immaterial as a matter of law because it cannot be said that any reasonable investor could consider them important in light of adequate cautionary language set out in the same offering." Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 357 (2d Cir. 2002). Given the explicit "no guarantee" warning, a reasonable investor would not have been "misled into thinking" that an amendment was definitively forthcoming. See id. at 359.

The statements made in the September 8 conference call, however, were not accompanied by sufficient cautionary language to negate liability under the "bespeaks caution" doctrine. The statements communicated principally that an agreement to amend the metrics was imminent, if not formally concluded, and did not adequately alert investors to the risk that an agreement would not actually materialize.***

[Footnote 3] Although Authentidate began the call with a boilerplate warning that forward-looking statements were "subject to certain risks and uncertainties,"... the warning did not put investors on notice of the particular risk at issue, see Halperin, 295 F.3d at 359 (observing that a plaintiff may overcome cautionary language that did not "expressly warn of or did not directly relate to the risk that brought about plaintiffs' loss").

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