Corporate Update

Second Circuit Cautions Issuers to Provide “Meaningful” Forward-Looking Statement Disclaimers

The May 18, 2010 Second Circuit Court of Appeals decision in Slayton v. American Express Company et al. No. 08-5442-cv (2d Cir. 2010) fires a warning across the bow of any issuer that routinely replicates its forward-looking statement disclaimer. At issue in Slayton was a statement made by American Express in its May 2001 Form 10-Q that, although it had incurred a $182 million loss from its high-yield debt investments in the first quarter of 2001, “[t]otal losses on these investments for the remainder of 2001 are expected to be substantially lower than in the first quarter.” A few pages later, the Form 10-Q included a customary forward-looking statement disclaimer setting forth factors which could cause the statements to differ materially, including “potential deterioration in the high-yield sector, which could result in further losses in [its] investment portfolio . . . .” Following a July 2001 press release by American Express announcing an $826 million loss associated with its high-yield debt portfolio, including a $403 million loss related to investment-grade collateralized debt obligations (CDOs), plaintiff-shareholders filed a securities fraud action alleging that American Express had misled investors as to the extent of the anticipated losses associated with American Express’ over-investment in high-yield debt securities. American Express sought the protection of the safe harbor provisions of the Private Securities Litigation Reform Act (PSLRA) for its forward-looking statement regarding these losses.

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