Court Punishes Company For Statement Of Belief

Thomas Carlyle famously called economics, the "dismal science".  Sometimes, the law can be equally disheartening.  Imagine trying to explain to a client that a statement that the company is "on track" to meet its projections might be within the safe harbor for forward-looking statements under the Private Securities Litigation Reform Act while a statement that the company "believes that it is on track" might not.  That, unfortunately, is the result according to Bielousov v. Gopro, Inc., 2017 U.S. Dist. LEXIS 117223 (N.D. Cal. 2017). 

The plaintiffs in Bielousov alleged three categories of false and misleading statements.  Today's blog focuses on the first category, statements allegedly made by GoPro's Chief Financial Officer, Brian McGee, in an investor call.  According to the plaintiff, McGee's statements were false and misleading when made because GoPro was not then "on track" to reach the revenue guidance and McGee either did not believe his stated opinion or his opinion was misleading because he had not checked GoPro's real-time inventory and supply monitoring systems prior to speaking. Defendants move to dismiss the plaintiff's claims based on this statement, arguing that it falls within the protection of the PSLRA's "safe harbor" protecting forward-looking statements. 15 U.S.C. § 78u-5(c)(1). 

Judge Claudia Wilken did not agree.  Citing the U.S. Supreme Court's decision in Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318, 191 L. Ed. 2d 253 (2015), she concluded:

McGee was representing his and GoPro's existing state of mind when he stated, "In addition, we talked about our revenue guidance for 2016, its $1.35 billion to $1.5 billion. We believe we're still on track to make that as well."  This statement of present opinion is not forward-looking, and therefore is not covered by the PSLRA safe harbor provision.

In my view, a forward-looking statement is inherently a statement about what the speaker believes will happen.  Therefore, the statement "we believe that we are on track" is no different than "we are on track" - both are assertions of the speakers opinion as to what the future might be.  

The focus on whether a speaker's statement regarding future events was prefaced by "we believe" also flies in the face of common sense.  No participant in the investor call would have noticed, much less made a different investment decision, had Mr. McGee omitted the phrase "we believe".  To expose issuers to the enormous expense of defending securities law claims based on the use of "we believe" is contrary to Congress' intent to encourage issuers to make forward-looking statements by enacting the PSLRA's safe harbor provisions.