Big Boys Take Big Risks: Big Boy Letter Bars Investor State Law Fraud Claims

A recent federal appellate ruling in favor of Credit Suisse in a fraud action brought by Pharos Capital has strengthened the case for using so-called “Big Boy” letters. Pharos held that a well-drafted Big Boy letter made it impossible for an investor to show justifiable reliance and thereby doomed state law fraud and misrepresentation claims. While these letters may not entirely block federal securities claims, they are a potent tool for limiting any claim that requires a showing of reliance.

A US appellate court ruling recently upheld a decision in favor of Credit Suisse, dismissing a fraud action by Pharos Capital (“Pharos”). The court held that because of the parties’ “Big Boy” agreement, Pharos could not have justifiably relied on Credit Suisse’s representations regarding a potential investment. This decision confirms that “Big Boy” letters may shield parties from state law fraud and misrepresentation claims, although these agreements may not fully protect against federal securities law claims or SEC claims.

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