Institutional Investors Encouraged to Support Important Amicus Curiae Brief in U.S. Supreme Court in Omnicare
August 5, 2014
We are writing to alert you to another U.S. Supreme Court case of critical importance to the institutional investor community, Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund ("Omnicare"), which concerns the standards for public offering liability and will be decided in the Court's upcoming October Term.
Just as in the historic Supreme Court decision in Halliburton II this summer and the Court's pending decision in IndyMac, the Omnicare case presents a securities law issue with potentially severe implications for investor rights. It is critically important for the institutional investor community's voice to be heard in Omnicare. Accordingly, BLB&G is again taking a leading role in preparing an amicus curiae ("friend-of-the-court") brief on behalf of pension funds and other prominent institutional investors, and asks you to strongly consider supporting the brief. Jonathan Massey, a highly regarded Supreme Court practitioner, is serving as counsel of record and is working closely with our firm on the brief.
How Omnicare affects the institutional investor community
Omnicare concerns the standard investors must meet in order to assert claims based on untrue statements of "opinion" contained in registration statements for public securities offerings. Section 11 of the Securities Act of 1933 allows purchasers of securities issued under registration statements containing "untrue statements of material fact" to bring claims for damages against the issuer, its officers and directors who signed the registration statement, and the underwriters of the offering (among others). Section 11 claims are straightforward strict-liability claims that do not require investors to plead or prove that defendants acted with intent to defraud. Thus, Section 11 claims are among the most powerful avenues of recovery available to investors under the U.S. federal securities laws, and reflect Congress's intent that investors should be able to take representations in offering materials at face value.
In Omnicare, the Court will decide whether investors may continue to plead that a statement of opinion in an IPO registration statement was "untrue" by alleging that the opinion was objectively wrong, or whether the investor must, in addition, allege that the statement was subjectively false - that is, that the speaker's actual opinion differed from the statement, even if the statement lacked a reasonable basis when made. Many Section 11 cases involve statements concerning matters of opinion, such as the adequacy of loan reserves, an estimate of goodwill, real-estate appraisals, or descriptions of credit risk or a company's compliance with laws or risk-management standards (as in Omnicare). It is often difficult, however, for investors to allege facts at the pleading stage demonstrating management's psychological awareness that their opinion statements were false. Moreover, the types of statements affected by Omnicare are potentially endless, since corporations could engage in gamesmanship and attempt to transform statements of fact into "opinions" through phrases such as "we believe" (as in Omnicare). In short, an adverse ruling in Omnicare could threaten the continued viability of Section 11 as a remedy for institutional investors in a large number of public offerings.
Given the billions of dollars that institutional investors invest annually in public securities offerings, and in order to protect the strength and effective functioning of the U.S. capital markets, we believe it is critically important to have as much support as possible from the institutional investor community to demonstrate the importance of this issue.
The deadline for filing the amicus brief with the Supreme Court is September 2. If your fund or financial institution is interested in joining the brief on the merits, please let BLB&G partner Blair Nicholas know by email (BlairN@blbglaw.com) as soon as possible, but no later than August 22.
If you have any questions, please contact Mr. Nicholas directly at 858-720-3183.