The Substantive Limits of Liability for Inaccurate Predictions

摘要

In 1995, Congress enacted a statutory safe harbor to encourage companies to disclose more forward-looking information. Unfortunately, the case law interpreting the safe harbor has failed to yield intelligible standards for evaluating allegations of fraudulent forward-looking statements. As a result, companies have been reluctant to increase disclosures of forward-looking information and the legislation’s ultimate objective - to enhance allocative efficiency - has not been met. The article argues that two characteristics of the pre-1995 development of regulatory and judicial approaches to forward-looking information are primarily responsible for the continuing confusion in this area of the law. The first is a sharp, but heretofore unacknowledged, doctrinal shift in early 1990s marked by In Re Donald J. Trump Casino Securities Litigation, a 1993 case in which the Third Circuit held that appropriately tailored accompanying statements render a projection immaterial. The second is the pre-1993 proliferation of imprecise vocabularies that refer to a single set of concepts of liability but fail to adequately elucidate the judicial inquiries entailed by these concepts. Either the Securities and Exchange Commission or the Supreme Court could take advantage of the flexible language of the safe harbor and eliminate both of these sources of confusion by steering lower courts into a single, clearly articulated framework for evaluating allegations of misleading forward-looking statements.