The Consequences of What We Say: Minimizing Potential Liability Under the Securities Laws
The business challenges posed by the coronavirus are unique and unprecedented. The pervasive uncertainty, market turmoil, and near constant stream of new information inevitably draws our focus to near-term concerns and demands, and action that must be taken quickly to address them. However, it is in these exact times of crisis and uncertainty that companies cannot afford to lose sight of the very real consequences hastily made statements and disclosures may have in terms of liability under the securities laws.
Securities class actions and shareholder derivative actions follow negative market activity like night follows day. And the coronavirus pandemic has created, perhaps more than any crisis before it, a perceived need for companies to provide customers, clients, shareholders, and the general public immediate, real-time updates about plans for navigating the pandemic and its impact on operations. Every person reading this post likely has an inbox brimming with emails regarding coronavirus plans and impact from every company with which they have ever transacted any kind of business.
When the dust settles, however, it is these very communications—along with any SEC filings, earnings guidance, investor calls, and other public-facing statements regarding business operations issued during this time period—that will be combed for material misstatements and omissions that might form the basis of a securities class or shareholder derivative action. Indeed, the U.S. Supreme Court made clear less than a year ago that materially misleading statements made in connection with the purchase or sale of a security, even by email, subject the maker of the statement to potential liability under Rule 10b-5(b) and subject the disseminator of the statement to potential liability under Rule 10b-5(a) and (c):
Of course, in addition to private securities class and derivative actions, companies must be mindful of potential enforcement actions by regulators. Nor are private companies exempt from private or regulatory enforcement actions based on misstatements or omissions that bear materially on their finances or operations.
Whether you are already facing securities litigation, are trying to take appropriate precautions to avoid it, or need any other assistance regarding the requirements of the securities laws and how conduct during this pandemic may implicate them, we are here to help. Please do not hesitate to contact Sam Portnoy, a Director in the Gibbons Commercial & Criminal Litigation Department, with your questions or concerns.
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