Forward-Looking Statements
Often, courts have declined to impose liability for forward-looking statements because such statements are unlikely, as a matter of law, to be material to a reasonable investor. In the Popular case, the defendants contended that the statements relied upon by the plaintiffs for their allegations of securities fraud constituted forward-looking statements. The court disagreed. It noted that the forward-looking statements were not accompanied by "meaningful cautionary statements." Moreover, the maker of the statements had actual knowledge that they were false or misleading. Therefore, neither safe harbor for forward-looking statements was satisfied. Accordingly, the motion to dismiss on this ground was also denied.

As a result of the Popular decision, a claim of securities fraud based on a belated recordation of a valuation allowance can proceed to trial. Whether securities fraud was, in fact, committed will have to await the next phase of the litigation. Presumably, the failure to record any valuation allowance at all, where it is later determined that one was necessary, would be an easier case for a court to advance toward resolution.

Contributor Robert Willens, founder and principal of Robert Willens LLC, writes a weekly tax column for CFO.com. 

Footnotes

¹ Russell Hoff et al. v. Popular, Inc. et al., _F.Supp.2d_ (DC P.R. 2010).

² See Ernst & Ernst v. Hochfelder, 423 US 185 (1976).

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