Broker-Dealer Litigation - Greenberg Traurig LLP

3. Safe Harbor/Bespeaks Caution Defense
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New Orleans Emps. Ret. Sys. v. Celestica, Inc., 2011 WL 6823204 (2d Cir. Dec. 29, 2011).
In an unpublished opinion, the Second Circuit reversed and remanded the district court’s
dismissal of a putative securities fraud class action. Plaintiffs asserted that the district court erred
by, among other things, finding that certain allegedly false and misleading statements were
shielded from liability by the Private Securities Litigation Reform Act of 1995’s safe harbor for
forward-looking statements. The Second Circuit found that many of the statements at issue were
not forward-looking statements and, thus, the safe harbor did not apply. Specifically, the Second
Circuit found that defendants did more than offer “rosy predictions,” and instead allegedly made
false statements of present or historical fact related to an ongoing restructuring plan and the
cause of problems associated therewith. Accordingly, the Second Circuit found that dismissal
was not warranted and reversed the decision of the district court.
Hill v. State St. Corp., 2011 WL 3420439 (D. Mass. Aug. 3, 2011).
In a consolidated securities fraud and ERISA class action, the district court denied
defendants’ motion to dismiss claims related to allegedly false and misleading statements
regarding the defendant bank’s exposure to risk due to mortgage-backed securities holdings.
Defendants argued that the alleged misstatements were inactionable under the bespeaks caution
doctrine due to cautionary language in their regulatory filings referenced by defendants.
Although defendants made various disclosures in their regulatory filings regarding the mortgagebacked
securities market and unrealized losses on their portfolio, the court found that such
disclosures were insufficient to render the alleged misstatements at issue immaterial pursuant to
the bespeaks caution doctrine. The court referenced the investing public’s response and the
drastic drop in the defendant bank’s stock price after disclosure of the alleged fraud. Given these
facts, the court found that defendants’ disclosures simply failed to provide sufficient warning or
detail. Accordingly, the court denied defendants’ motion to dismiss.
In re Sturm, Ruger & Co., 2011 WL 494753 (D. Conn. Feb. 7, 2011).
In a putative securities fraud class action, the district court granted in part and denied in
part defendants’ motion to dismiss claims related to the defendant company’s transition to a
“lean” manufacturing model which defendants allegedly knew would jeopardize the company’s
long-term profitability. Essentially, plaintiffs alleged that defendants failed to disclose known
problems with the transition while making materially false and misleading statements regarding
the company’s prospects. Defendants argued that alleged misstatements regarding the expected
liquidation of the defendant company’s inventory and its possession of sufficient raw materials
to meet demand were forward-looking statements shielded from liability by the Private Securities
Litigation Reform Act of 1995’s safe harbor provisions. The court found that these statements
were forward-looking, accompanied by cautionary language warning about the very risks at
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