§78u–5 Application of Safe Harbor for Forward-looking Statements

Summary

Protects certain people from being sued for forward-looking statements in private lawsuits, if they meet rules. It covers a company that must file reports with the SEC under section 78m(a) or section 78o(d), people acting for that company (officers, directors, or employees), outside reviewers hired by the company who speak for it, and underwriters who use or repeat company-provided information. The protection does not apply in some cases. It does not apply if, in the 3-year period before the statement, the company was convicted of certain crimes or was hit with a government order about securities fraud. It also does not apply for statements tied to blank check company offerings, penny stock, rollup deals, going-private transactions, or for certain other types of statements such as GAAP financial statements, investment company registration statements, tender offers, initial public offerings, offerings by partnerships or LLCs or direct participation programs, or beneficial ownership reports filed under section 78m(d). People are safe from liability for forward-looking statements unless the plaintiff proves the statement was false and the speaker knew it was false. To be protected, a forward-looking statement must be labeled as such and include meaningful warnings about important factors that could make results differ, or be immaterial. For spoken statements, the speaker must warn it is forward-looking, warn results might differ, and point to a readily available written document that contains the fuller warning. Documents filed with the SEC or widely shared are treated as readily available. There is no duty to update forward-looking statements. Courts must consider the statement and any warnings on a dismissal motion and must pause most discovery while a defendant’s summary judgment motion on this protection is pending. The SEC may make more exemptions by rule if they serve the public interest and protect investors. Key defined terms: forward-looking statement — projections, management plans, future performance statements, related assumptions, outside reviewer reports, and similar items the SEC may add; investment company — see section 80a–3(a); going private transaction — as the SEC’s rules under section 78m(e) define it; person acting on behalf of an issuer — officer, director, or employee; other listed terms are defined by SEC rules.