Last week, VC Laster issued a decision in In re Cloudflare Stockholder Litigation. I previously blogged about this case twice. In brief: Cloudflare is a controlled company due to its dual class stock, but that meant its founders couldn’t sell stock and also maintain control.  To rectify this problem, they prevailed upon the board to propose a charter amendment that would recapitalize the company in a manner that (1) did not run afoul of Nasdaq listing rules, and (2) would allow them to both maintain their high-vote shares while selling down their economic stake.

Once upon a time, this kind of conflicted deal could only have been cleansed in Delaware by approval of an independent committee and disinterested shareholders.  Before that, it could not have been cleansed at all – it would be subject to entire fairness review.

But post-SB21, all controller conflicts other than take-privates can be cleansed by independent committee, and that’s what our founders were banking on.

But!  Shareholders who filed suit to challenge the arrangement argued that SB21’s new cleansing procedures did not apply, because this transaction fell into a carveout, providing that the cleansing regime would not “limit judicial review for purposes of injunctive relief of provisions or devices designed or intended to deter, delay, or preclude a change of control or other transaction involving the corporation or a change in the composition of the board of directors.”

Precisely because there was a plausible argument that this deal could not be cleansed by independent committee, the defendants agreed to expedited proceedings and discovery.  Which uncovered numerous aspects of the committee process that called into question the committee’s good faith.  Notably, even if SB 21 applies, lack of good faith on the part of the independent special committee is grounds to conclude a conflict transaction is not cleansed, and therefore subject to entire fairness review.

Which led to VC Laster’s ruling last week.

The headline is, he rejected the plaintiffs’ argument that recapitalizations of this sort do not get the benefit of SB 21’s cleansing procedures – rather, looking to the statutory history, he concluded this was precisely the kind of transaction SB 21 was intended to cover.

I can’t say I blame him; the plaintiffs’ argument would, uncomfortably, mean that if a plaintiff sues for equitable relief before a transaction is completed, the cleansing required would be more onerous than if a plaintiff sues for damages after a transaction is completed, and that’s just weird.

But, now that VC Laster had evidence before him about how the special committee actually functioned, he concluded that there was a reasonable probability that it failed to act in good faith, as DGCL 144’s cleansing regime requires, and he preliminarily enjoined the recapitalization.

Now, I don’t take issue with his headline ruling, but I do disagree with aspects of how he interpreted the statute.  I’m going to do a separate post on that, for the nerds who really want to do a close read of DGCL 144’s language, because it gets very very long. Update: Here is that post.

But here’s the thing.  VC Laster’s ruling came down on Friday, October 16.  Just one business day later – on Monday, October 19 – Meta’s board voted to recapitalize the company to create a new class of voting shares, that would allow Mark Zuckerberg to cash out some of his existing stake without diminishing his voting control.

The SEC filing has a whole song and dance about how California’s impending wealth tax was going to force him to move to avoid selling his shares to pay the bill, and so the board “bargained” to keep in in California – or wherever the company’s headquarters are – by creating nonvoting stock.

And let’s just say, because we now know that DGCL 144’s safe harbors do apply to these kinds of transactions, future plaintiffs will not get discovery into how they are negotiated. Revised Section 220 will not, in most instances, allow plaintiffs to get access to informal board materials – only the heavily lawyered formal ones which will, no doubt, detail a pristine process. 

Which means plaintiffs will not be able to test the Meta board’s assertion that it was necessary to recapitalize the company to keep Zuckerberg from leaving California – before the tax bill actually passes, before it survives legal challenges, before testing alternatives like allowing him to pledge more of his stock, or pulling a Brian Niccol. (I note that the SEC filing states the board proposed creating the nonvoting stock conditional on the tax bill actually going into effect, but then Zuckerberg said, “Wait, what if another jurisdiction passes a wealth tax? Didn’t think of that, did you?” and the committee agreed).

On this, let us all remember that 10 years ago, Meta – then Facebook – pulled the exact same stunt.  Zuckerberg wanted to create a class of nonvoting stock so that he could sell shares while retaining control; a special committee was formed to “negotiate” with him.  But that was before SB 21, and conflict transactions with controllers required both independent committee approval and disinterested shareholder approval to avoid entire fairness review and thus trial.  Facebook’s disinterested shareholders overwhelmingly rejected the recapitalization, and plaintiffs challenging the deal were able to get discovery on their way to trial – only to learn how verkakte the committee process was, and the whole idea was dropped.

This time, though, we’re expected to believe it’s all about California’s wealth tax, just at the precise moment the board can be reasonably confident shareholders will not be able to inquire about their deliberations past formal board materials.

And another thing. New Shareholder Primacy podcast is up!  This week, me and Mike Levin talk about retail voting programs. Here at Apple; here at Spotify; and here at YouTube.

June 6–11, 2027 | Lexington, Virginia

Washington and Lee University School of Law (“W&L Law”) invites up to ten tenure-track or tenured legal scholars to join its faculty for an intensive writing retreat at House Mountain Inn in Virginia’s scenic Shenandoah Valley, a region long home to artists, artisans, and scholars alike.

Nestled high atop the slopes of Big House Mountain, House Mountain Inn offers 1,000 private acres of mountain preserve with sweeping views of the surrounding landscape. This peaceful setting provides an opportunity for scholars to step away from the demands of everday life and devote sustained attention to their research and writing.

The Retreat is designed to balance independent writing time with opportunities for thoughtful intellectual exchange and informal conversation among colleagues. We convene a small group of scholars, working across different fields and methodological traditions, with the hope of fostering an environment that encourages new ideas and lasting professional relationships.

The Retreat reflects W&L Law’s longstanding commitment to advancing legal scholarship and cultivating a vibrant intellectual community grounded in curiosity, collaboration, and collegiality.

The 2027 Writing Retreat will take place from Sunday, June 6, through Friday, June 11, 2027. Participants are expected to attend for the full duration of the retreat to support a shared, immersive writing experience.

FUNDING

W&L Law will provide lodging and meals for all participants at House Mountain Inn, together with a travel stipend of up to $500. Additional travel assistance may be available based on individual financial need.

Funding for the retreat is generously provided by W&L Law’s Frances Lewis Law Center, an independently endowed institute dedicated to enriching the intellectual life of the law school community and supporting legal scholarship and academic exchange.

SUBMISSION GUIDELINES

All tenure-track and tenured faculty at U.S. law schools are eligible to apply, provided their proposed research projects fall within the retreat’s scholarly focus.

The 2027 Writing Retreat will focus exclusively on public-law scholarship, meaning works related to government oversight, enforcement, administration, liability, and separation of powers. We welcome public-law scholarship within an array of fields, including:

• Administrative law
• Antidiscrimination law and theory
• Civil rights
• Constitutional law
• Consumer protection
• Criminal law
• Critical legal studies
• Cyber law
• Election law
• Environmental law
• Evidence
• Family law
• Federal courts
• Health law
• Immigration
• Information technology law
• Jurisprudence
• Labor law
• Legislation and statutory interpretation
• Public international law

We encourage submissions that approach these subjects from a variety of theoretical, doctrinal, empirical, comparative, and interdisciplinary perspectives.

Applicants should submit a curriculum vitae and a research proposal of no more than 1,500 words describing the project they intend to develop during the retreat. Proposals should identify the project’s central topic, research methodology, stage of development, potential contribution to scholarship and practice, and relationship to one or more of the public-law fields identified above.

Application materials should be submitted as PDFs by email to:

Kish Parella — parellak@wlu.edu
Alison Rogers — arogers@wlu.edu

Please use the subject line “2027 W&L Law Writing Retreat.”

Application Deadline: February 1, 2027

Submissions will be reviewed by a committee of W&L Law faculty. Selection will be based on the proposed project’s scholarly promise, its alignment with the retreat’s public-law focus, and its contribution to a diverse range of topics, perspectives, and methodologies.

ABOUT W&L LAW

Founded in 1749, Washington and Lee University is one of the nation’s oldest institutions of higher learning, and its School of Law reflects that enduring academic tradition. W&L Law fosters a collaborative environment in which scholarly inquiry thrives, enabling faculty to engage deeply with complex legal questions while maintaining a collegial and supportive academic culture.

Located in Virginia’s historic Shenandoah Valley, the Law School offers a setting that is both intellectually stimulating and uniquely conducive to focused scholarly work.

We look forward to welcoming colleagues to the Blue Mountain Writing Retreat for a week of productive writing, thoughtful conversation, and scholarly community building.

Companies have continued to shift between jurisdictions in 2026. The September update identified 59 jurisdictional moves. That number has risen to 71. An updated copy of the running spreadsheet is available here.

As usual, I’ve had Claude generate infographics to help make the data easier to understand. I’ve also placed the list of reincorporating companies at the bottom and behind a jump because it’s long at 71 companies.

Overall Movement Flows

In terms of movement flow, most of the activity continues to be out of Delaware, but that should be expected because Delaware has the most public companies. Delaware also runs third here, with 15 attempts to shift to Delaware.

Headquarters and Reincorporations

Texas continues to draw companies with strong existing operational ties to Texas. Delaware and Nevada, in contrast, don’t have the same base.

Movement Over Time

Although I had expected movement to mostly cluster around proxy season, we’re continuing to see a good number of moves now. September was surprisingly busy with 9 identified moves and another two so far in October.

Vote Results – Without Abstentions

On the voting front, Delaware’s familiarity for investors may be helping make it easier to secure votes. The chart shows votes by the percentage in favor on votes cast–this is not always the standard to move. It takes a majority of the outstanding voting power to shift out of Delaware which explains why Archer Aviation’s vote failed despite winning 84% of the votes cast.

Vote Results – With Absentions and Broker-Non Votes

When abstentions and broker non-votes are included, the vote results look different. Companies may struggle to move if they have a high retail base that does not tend to vote.

Movement by Market Cap

When it comes to market cap, Texas picking up Exxon and Dell gives the state a likely insurrmountable lead.

Overall Totals

In terms of raw numbers, it remains close between Texas and Nevada for picking up the most companies this year.

Net Movement Delaware

In the reincorporation space, Delaware has a net loss so far this year of 28 public companies. Of course, Delaware continues to do well in the IPO space, picking up 73 companies. When you look at both reincorporations and IPOs, Delaware continues to grow its stable of franchise-tax paying public companies.

The running list is after the jump. As always, special thanks to Boyd Law students Hunter Hawkins, Enya Dinca, and Rocco Marino for their help maintaining and updating the spreadsheet.

Back when Exxon’s board first created its retail voting program – allowing retail shareholders to submit advance instructions to always vote with Exxon’s management – the New York City Comptroller’s Office submitted a shareholder proposal asking Exxon to open up the program to allow retail shareholders to submit other standing instructions, that would not always vote with management (such as, for example, voting as a particular proxy advisor recommends). Exxon, of course, recommended shareholders vote against the proposal because, as I blogged at the time, Exxon argued it would be violating its own fiduciary obligations to offer such an option.

Anyway, the SEC recently worked with Tesla to create a template for similar retail voting programs at any company. In connection with that, the SEC also just issued two CFIs about these programs. In the first, the SEC affirms that no company that offers standing voting instructions to always vote with management is required to create an option to allow shareholders to vote in accordance with the recommendations of a third party, which, not surprising.

But the second CFI says:

Question: Can a registrant’s retail voting program offer shareholders an option to submit standing voting instructions that require votes to be cast in accordance with voting recommendations issued by a third party?

Answer: A registrant may be engaging in a solicitation subject to the federal proxy rules when it communicates with shareholders about submitting standing voting instructions through the registrant’s retail voting program. Accordingly, absent an available exemption under Rule 14a-2(a), such communications may be soliciting materials subject to Rule 14a-9, which prohibits material misstatements and omissions.

Registrants that want to permit shareholders to submit standing voting instructions requiring votes to be cast in accordance with third-party voting recommendations should consider, for purposes of Rule 14a-9, whether shareholders would be furnished with material information about the recommendations necessary to understand how their shares will be voted on a particular proposal at an upcoming meeting pursuant to the instructions. Two important factors that should be considered are whether shareholders will: 

• receive the third-party voting recommendation on a particular proposal at no cost; and 
• have sufficient opportunity after receiving the recommendation to override the vote to be cast pursuant to the standing voting instruction.

For example, the third party may provide its voting recommendation to the registrant at no cost and with sufficient time so the vote to be cast on a particular proposal pursuant to the instruction is disclosed in the registrant’s definitive proxy statement. Alternatively, the third party may agree with the registrant to provide the voting recommendation directly to shareholders at no cost and with sufficient time for shareholders to override the instruction by voting on the registrant’s proxy card for the meeting.

So this is a bit convoluted but I think the SEC is suggesting that if an issuer allows retail to vote as a third party recommends – Glass Lewis’s ESG policy, or As You Sow, or something – the issuer is responsible if the third party violates Rule 14a-9, which includes a requirement that the policy be offered for free.

Look, it’s not that I expected issuers to be leaping over themselves to offer retail shareholders the opportunity to vote against management, but apparently just in case that might happen, the SEC is there to ensure issuers are strongly incentivized against it. Or at least to give them a better excuse than Exxon’s.

And there is no other thing. No new Shareholder Primacy podcast this week; back soon!

In a typical securities class action, plaintiffs name the individual company officers responsible for the alleged fraud, as well as the company itself.  The company’s liability is, necessarily, predicated on some kind of agency theory, but that point is apparently so obvious that it isn’t usually discussed.

Which is why it was funny to me that two cases came out on successive days, both from the Central District of California, in which this issue came up.

The first was an unusual kind of case, in that the claims concerned misstatements about a mutual fund.  The Chief Investment Officer of Western Asset Management, Kenneth Leech, was alleged to have engaged in a “cherry picking” scheme, whereby he allocated good trades to funds with higher fees, and bad trades to funds with lower fees, actions which resulted in a pending SEC enforcement action and criminal charges (which were dismissed).  I assume because, after Janus Cap. Grp., Inc. v. First Derivative Traders, 564 U.S. 135 (2011), you can’t sue a mutual fund sponsor over false statements in a prospectus, plaintiffs alleged that Western’s Form ADV disclosures were false – which contained general statements like, Western engaged in “fair and equitable” asset allocation practices.  (The court noted that, in a case like this, where fraud-on-the-market doesn’t work, plaintiffs may have a heck of a time winning class certification, but that’s a different issue).  The plaintiffs alleged – and the court accepted – that Leech’s responsibilities at Western included overseeing the disclosures; therefore, Leech (as well as Western) “made” the statements at issue.

But could Leech’s scienter be attributed to Western?  He was, no doubt, a Western employee and agent, but ordinarily, actions of employees are not attributed to their employers if the employee was engaged in an “independent course of conduct not intended by the employee to serve any purpose of the employer.” Restatement (Third) of Agency § 7.07.  Or, as the court put it, actions of a rogue agent “are not imputed to the principal if the agent acts adversely to the principal in a transaction or matter, intending to act solely for the agent’s own purposes or those of another person.” Here, Western contended that Leech was acting contrary to Western’s interests, and therefore his scienter could not be imputed to the firm.

In a tentative ruling that was later adopted, Abilene Firemen’s Relief and Retirement Fund, et al. v. Western Asset Management Company, LLC, 2026 WL 2958359 (C.D. Cal. Sept. 29, 2026), the court rejected the argument on two grounds.  First, though Leech’s scheme may have damaged Western’s reputation when it came to light – and may even have been contrary to Western official policy – that is not enough to take a rogue employee’s actions out of their scope of authority, especially when (as here) Western profited off the higher fees while the scheme was in place.  Second, however, the court held that Leech was acting with apparent authority, and apparent authority – on which innocent third persons rely – does not have an adverse interest/scope of employment exception; it’s an entirely distinct theory.  Instead, liability based on apparent authority is created by – well, as I blogged the last time I delved into this – “a person’s manifestation that another has the authority to act with legal consequences for the person that makes the manifestation.”  Here, innocent investors relied on the statements; that was enough for apparent authority liability.

I gotta say, that does present a bit of a puzzle, because the critical condition for apparent authority is reliance on a misapprehension of the agent’s authority.  The archetypical case – similar to In re ChinaCast Educ. Corp. Sec. Litig., 809 F.3d 471 (9th Cir. 2015), which the court cited – involves an agent who personally communicates false information to an innocent third party.  In those situations, the third parties necessarily rely on that person, specifically, in their purported role.  Here, by contrast, the issue is Leech’s personal state of mind, and no one was relying on Leech personally; they were relying on Form ADVs which were not explicitly attributed to Leech.  Such are the complexities when actus reus is somewhat divorced from mens rea; frankly, just straight up vicarious liability seems like the better fit. 

The second case, In re Mullen Automotive, Inc. Securities Litigation II, presented a different (and I suppose simpler) puzzle.  An apparent serial fraudster, Lawrence Hardge, and his company, Global EV Technology, entered into a joint venture with a publicly traded firm, Mullen, to develop a new electric vehicle technology – which turned out to be entirely fictional.  Mullen and Hardge formed a new entity to develop this purported technology, MAEO, of which Mullen owned 51%, and Hardge’s companies owned the other 49%.  MAEO’s results were consolidated onto Mullen’s financial statements.  Hardge became the Senior Vice President of Technology of MAEO.  Mullen announced all of this with great fanfare, hijinks ensued, you can imagine the rest.

But for our purposes, the critical issue arose when Hardge went on Facebook Live to announce a $10 billion contract with Saudi Arabia.  The complaint quotes Hardge – (including his conclusion “So, the SEC if you’re watching, that’s already agreed upon”) – but does not contain any further information about the incidents surrounding the post, leading to the question: was Hardge acting an agent or apparent agent of Mullen, such that Mullen could be held responsible for these statements specifically?  The court held not.  The plaintiffs had not alleged that Mullen had “authority” over the statement for Janus purposes, and:

Plaintiffs fail to sufficiently allege that Hardge had apparent authority to speak on behalf of Mullen.  Hardge is alleged to have been a Senior Vice President of the subsidiary MAEO, rather than an employee, officer, or director of Mullen. Plaintiff’s citation to In re ChinaCast Educ. Corp. Sec. Litig., 809 F.3d 471, 473 (9th Cir. 2015) is unavailing.  In ChinaCast, the Ninth Circuit held that the scienter of the founder and CEO of a company can be imputed to his corporate employer in a securities fraud action.  ChinaCast did not involve an officer of a subsidiary speaking on behalf of a parent company.  While the [complaint] draws a cursory legal conclusion that Hardge was “acting as the actual or apparent agent of Mullen,” it offers insufficient facts to plausibly support that conclusion.  Plaintiffs cite to SEC v. OwnZones Media Network, Inc., No. CV 20-03108-CJC (JPRx), 2020 WL 13311398, at *4–5 (C.D. Cal. Sept. 17, 2020), where a court found the SEC offered sufficient allegations that an employee of a company acted with apparent authority to speak on behalf of the corporation.  Unlike here, the complaint in OwnZones included allegations that the company provided the employee with a company email address, business card, office space to present to prospective investors, and that the employee was introduced to investors as someone who would raise funds on behalf of the company.  The [complaint] here lacks any such details from which to infer apparent authority.

2026 WL 2997950 (C.D. Cal. Sept. 30, 2026).

Mullen did make multiple announcements about the technology and Hardge’s role in the joint venture, but I suppose that’s not equal to a business card. Ah, well. Maybe plaintiffs can find some other details to replead.

And another thing. New Shareholder Primacy podcast is up!  This week, me and Mike Levin talk about the pending appraisal dispute involving Silver Lake and Endeavor, and different kinds of activist investors. Here at Apple; here at Spotify; and here at YouTube.

The Lowell Milken Institute for Business Law and Policy at UCLA School of Law is pleased to announce its third annual Business and Tax Roundtable for Upcoming Professors (“BATRUP”). This in-person Roundtable will take place at UCLA from Sunday evening May 23^rd through Tuesday afternoon May 25^th.  The program will feature commentary by invited senior scholars as well as an opportunity to meet fellow aspiring scholars while enjoying Los Angeles.  We warmly invite scholars preparing for the academic job market to participate.

Roundtable Purpose and Eligibility
The Roundtable is designed to offer mentorship and feedback to aspiring legal scholars who plan to pursue tenure-track positions at law schools. It is open to scholars who hold a JD, master’s degree, or PhD, who have not yet secured a tenure-track law faculty appointment at the time of submission, and who are not listed in this academic year’s Faculty Appointments Register. Selected authors must be able to attend the Roundtable in person at UCLA.

We welcome submissions on any topic within business law or tax law. Co-authored papers are eligible provided all authors meet the submission criteria. To ensure the Roundtable’s focus on evolving scholarship, we ask that submitted papers not be published or scheduled for publication by the Roundtable date, though papers accepted for publication that remain open to substantive revisions are eligible.

Selection Process and Roundtable Details
We anticipate selecting 6-7 papers from the submissions received. For each selected paper, the Lowell Milken Institute will cover reasonable travel, accommodation, and meal expenses for one author to attend the Roundtable. Participants will have the chance to engage in dynamic exchanges with UCLA faculty and invited guest scholars, as well as with their peers. Our aim is to foster a supportive community of early-career business and tax law scholars as they prepare for their careers in legal academia.

Submission Guidelines
Interested participants should submit either a complete draft or an extended summary of at least 5,000 words by email to lowellmilkeninstitute@law.ucla.edu by February 12, 2027. We expect to notify authors of their selection by March 31, 2027. For any questions, please reach out to the same email address or to one of our faculty co-directors, Professors Jason Oh or Andrew Verstein.

Please feel free to share this call for papers with anyone who may be interested in participating.

The Private Securities Litigation Reform Act (PSLRA) insulates certain forward looking statements – projections of future performance – from private securities fraud claims if the projections are “accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement.”

But what does “accompanied” mean?

The statute makes no specific provision for written projections, but for oral ones:

the requirement … shall be deemed to be satisfied … if the oral forward-looking statement is accompanied by an oral statement that additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statement is contained in a readily available written document, or portion thereof [and] … identifies the document, or portion thereof, that contains the additional information about those factors relating to the forward-looking statement; and the information contained in that written document is a cautionary statement that satisfies the standard…

Which is why it was funny to read the recent opinion in Construction Industry Laborers Pension Fund v. Fortrea Holdings Inc., 2026 WL 2906043 (S.D.N.Y. Sept. 28, 2026), where – though the court dismissed the complaint on other grounds – certain statements were not protected by cautionary language because they were not “accompanied” by it, as the PSLRA requires.  To wit:

Two of the statements at issue were made by Mr. Pike at the January 10, 2024 JP Morgan Healthcare Conference.  At that conference, Mr. Pike prefaced his remarks with the following fifteen-word warning, and nothing else: “Forward looking statements.  We may make some forward-looking statements, you have all the usual stuff here.”  Mr. Pike made the third statement at the Barclays Global Healthcare Conference on March 12, 2024:  “Now turning to Fortrea, of course, there [ ] may be forward looking statements here.”

Mr. Pike’s cursory warnings were insufficiently “meaningful” to qualify the statements for the safe harbor….

To be sure, executives of publicly traded companies are not required to incant a precise prophylactic warning to warrant protection under the safe harbor.  But all that was required was for Mr. Pike or one of his employees to orally identify the “document, or portion thereof, that contains the additional [cautionary] information” — in other words, to direct his audience to the cautionary statements made in some prior disclosure. 

He didn’t, so they weren’t, even though the company had various warnings in its SEC filings.

The court similarly held that certain earnings call statements were not protected.  Although it is SOP for earnings calls to be preceded by a PSLRA disclaimer, in this case, defendants didn’t submit earnings call transcripts with their motion to dismiss, and so the court could not assess whether such a disclaimer was delivered. 

As I said, it didn’t work out too badly because the court found other reasons to dismiss, but I was struck by these holdings because, pretty much as far back as I can remember, courts have been handwaving the PSLRA’s formal requirement of accompaniment. Here’s the Seventh Circuit in Asher v. Baxter, 377 F.3d 727 (7th Cir. 2004):

The press releases referred to, but did not repeat verbatim, the cautionary statements in the Form 10–K and other documents filed with the Securities and Exchange Commission. The oral statements did not do even that much. Plaintiffs say that this is fatal, because [the statute] provides a safe harbor only if a written statement is “accompanied by” the meaningful caution….

If this were a traditional securities suit—if, in other words, an investor claimed to have read or heard the statement and, not having access to the truth, relied to his detriment on the falsehood—then plaintiffs’ argument would be correct. But this is not a traditional securities claim. It is a fraud-on-the-market claim. None of the plaintiffs asserts that he read any of Baxter’s press releases or listened to an executive’s oral statement. Instead the theory is that other people (professional traders, mutual fund managers, securities analysts) did the reading, and that they made trades or recommendations that influenced the price. In an efficient capital market, all information known to the public affects the price and thus affects every investor.

When markets are informationally efficient, it is impossible to segment information as plaintiffs propose. … An investor who invokes the fraud-on-the-market theory must acknowledge that all public information is reflected in the price, just as the Supreme Court said in Basic.  Thus … if a cautionary statement has been widely disseminated, that news too affects the price just as if that statement had been handed to each investor. If the executives’ oral statements came to plaintiffs through professional traders (or analysts) and hence the price, then the cautions reached plaintiffs via the same route…So we take the claim as the pleadings framed it: the market for Baxter’s stock is efficient, which means that Baxter’s cautionary language must be treated as if attached to every one of its oral and written statements.

See also In re Humphrey Hospitality Trust, Inc. Sec. Litig., 219 F. Supp. 2d 675, 684 (D. Md. 2002); Harris v. IVAX Corp., 998 F. Supp. 1449, 1454 n.4 (S.D.Fla.1998); In re PEC Solutions Sec. Litig., 2004 WL 1854202, at 10 (E.D. Va. May 25, 2004); Kapur v. USANA Health Sciences, 2008 WL 2901705, at 13 (D. Utah July 23, 2008); In re Gilat Satellite Networks, 2005 WL 2277476, at 13 (E.D.N.Y. Sept. 19, 2005).

So, even though the PSLRA is fairly clear that incorporation-of-warnings-by-reference only works for oral statements and not written ones, it’s par for the course for corporate press releases to incorporate SEC filings as part of their safe harbor warnings (e.g., NVIDIA and Tesla), and though formal earnings calls typically begin with PSLRA warnings, including references to particular documents, other kinds of media, like news interviews, rarely do.  Mr. Pike can therefore be forgiven for his lackadaisical approach the disclaimers, as can the defense attorneys who did not submit earnings call transcripts.

That said, I personally think the Seventh Circuit got it wrong, because the PSLRA safe harbor was never about whether cautionary statements were heard and absorbed by investors and therefore offset the impact of the false projections, either directly or through market pricing.  The bespeaks caution doctrine, that preceded the safe harbor, required defendants to show that their cautionary language was sufficient to render the false projections immaterial.  See, e.g., In re Donald J. Trump Casino Sec. Litig., 7 F.3d 357, 371 (3d Cir. 1993).  But that’s not the test usually used for the PSLRA safe harbor, which is often treated by courts as an exercise in box checking. And if the PSLRA safe harbor is held to immunize false projections regardless of any real analysis of whether the warning actually would have mitigated the effects of the fraud, then efficient markets shouldn’t have any role to play either; it’s a formality, and if you skip the formalities, you should lose.

But then, I was part of the team representing the plaintiffs in the Asher case, so I would feel that way.

And another thing. New Shareholder Primacy podcast is up!  This week, me and Mike Levin interview Professor Stavros Gadinis about his new book, Corporate Ordering: How Corporations Navigate Social Conflict. Here at Apple; here at Spotify; and here at YouTube.