Public companies around the country labor under the misunderstanding that the Private Securities Litigation Reform Act’s “Safe Harbor” provision protects them from liability for publicly announced earnings guidance and other forward-looking statements. But the Safe Harbor is really not so safe; in fact, many judges go to great lengths to avoid the statute’s plain language and to hold companies responsible for false forward-looking statements.
The Safe Harbor was a key component of the 1995 reforms of securities class action litigation, through which Congress sought, in part, to encourage companies to disclose forward-looking information. The Safe Harbor, by its plain terms, is straightforward. A material forward-looking statement is not actionable if it either: (1) is “accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement,” or (2) is made without actual knowledge of its falsity. [15 U.S.C. § 77z-2(c)(1); 15 U.S.C. § 78u-5(c)(1)].
Originally published in Seattle Business magazine on February 9, 2014.
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