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.

Look, AI may kill us all but it will generate some fantastic headlines along the way. To wit:

Anthropic researcher believes more than 10% chance AI ‘could kill all humans’

A.I. Could Possibly End Humanity. How Are Humans Supposed to Process That?

AI staff complain of mental toll over fears of threat to society

How should investors position for the robot apocalypse?

and the chef’s kiss:

Tech leaders to UN: For the sake of humanity, please control the AI technology we created

The part that’s funny here, of course, is that the tech leaders who are raising the alarm that AI could destroy humanity are completely in charge of making sure that doesn’t happen. I seem to recall Sam Altman being fired – and leading a revolution for his reinstatement – over exactly that fear.

Now, in an ordinary business corporation, one might say – legitimately – that the managers have a fiduciary duty to maximize wealth for their shareholders, and therefore cannot let pesky concerns like the obliteration of humanity factor into their considerations, at least not if, taking those concerns into account, they still end up with a positive net present value.

Of course, that fiduciary obligation cannot be enforced in any real way, which is to say, no shareholder could sue an AI board for overindexing on safety while failing to maximize future profits, but boards could be forgiven for taking that obligation seriously nonetheless, and therefore putting out a call to the world’s leaders to alter the legal rules – somehow – to countermand their corporate law instructions.

But OpenAI and Anthropic are not ordinary corporations. They are both benefit corporations, specifically so that their boards can be relieved of the legal obligation to maximize profits, and are permitted to make the judgment call that the destruction of humanity is not worth the increase in shareholder value. The entire justification for taking control of these entities away from shareholders – and housing it, in both cases, in a nonprofit entity – is that these guardrails are necessary to ensure responsible AI development.

So it’s rather ironic to hear tech leaders insist that these protections are, essentially, fruitless when pitted against the profit motive.

Now, to be fair (as I previously posted) one possible argument is that the benefit corporation form is inadequate to constrain the profit motive for industries (like AI) that require extensive capital investment. But it still begs the question why OpenAI and Anthropic need to take all that control away from shareholders (which they surely will continue to do once they are publicly traded).

In any event, the real issue here seems to be something like this:

And another thing. New Shareholder Primacy podcast! This week, we have another epic crossover event with our sister pods Business Pants and Proxy Countdown, to discuss the SEC’s proposal to rescind Rule 14a-8. One additional point on this: We mention on the show that there are already comments up at the SEC website. Several of those are asking for more time beyond the 60 day comment period. This has become a theme; the SEC proposes huge amendments, and commenters on all sides ask for more time given the radical nature of the changes, and the fact that the SEC has not apparently examined how they interact. In this case, the interaction effect is subtle but important. For example, take the proposal to allow semi-annual reporting. If shareholders have access to 14a-8, they can communicate in a systematic way with management about their preferences for reporting cadence; without 14a-8, that becomes much more difficult.

Anyhoo, here at Apple; here at Spotify; and here at Youtube.

Andrew Jennings, has created Practical Scholarship as a way to better connect academics with ideas to discuss and law firms, bar associations, and CLE program providers in need of speakers for events and CLEs.

I’ve sent over a recent paper with some practical relevance to make it available if there are groups that want to talk about reincorporations and their cost effects.

To be clear, Professor Jennings isn’t running a speaker’s bureau here or guaranteeing anyone lucrative bookings. It’s a clearing house to help academics with relevant work connect with potentially interested audiences. Once a month, a digest curated from the submissions and organized by area will go out to subscribers.

I tend to learn an enormous amount from building relationships with the practicing bar. This strikes me as a way both to share some ideas and also to learn what others are thinking. I’m delighted that this has been created as a way to foster more engagement between the academy and practicing lawyers.

As expected.

Really quick stuff:

First, Mike Levin and I did a whole podcast on what would happen if the SEC proposed to rescind 14a-8, and one thing we speculated on was whether the SEC would try to tweak the rules to block “zero slate” proxy contests at the same time.

Interestingly, they are not proposing to do that, and in fact, they’re leaning in to the zero-slate contest as a viable option that partially justifies the loss of 14a-8. They even go out of their way to note that a shareholder could run a zero-slate contest without the 14a-19 requirement that they solicit 67% of the shareholders (except in Texas; Texas adopted the 67% requirement in its local shareholder proposal law), which would minimize costs.

What they are proposing to do is amend Rule 14a-4, to make zero-slate contests less procedurally threatening to the company. As I understand it, under the current rule, if there is a zero-slate contest, but the company does not include the proposal in its own proxy materials (as it is entitled to do), then, if a shareholder returns the company proxy card, they are functionally abstaining on the proposal – the company has no authority to vote no on the shareholder’s behalf. If the shareholder wants to vote “no,” the shareholder has to return the proponent’s card, which, among other things, means the company doesn’t collect or see those proxies. As a result, companies facing zero-slate contests have voluntarily included the proposals in their proxy materials, so as not to encourage shareholders to return the proponent’s card.

So, the SEC proposes to amend 14a-4 to give the company authority to vote proposals that do not appear on the company proxy statement or ballot, so long as the proxy statement includes a brief description of the subject of the proposal and how the company intends to vote (i.e., “no”). And, so shareholders don’t have to fear they’re returning ballots and giving the company unrestricted authority to vote on unknown items, the shareholders can check a box that says “you don’t have discretionary authority for anything that doesn’t appear on the ballot.” On first glance and without deep analysis (and without commenting on the broader proposal to rescind 14a-8) I can’t say the 14a-4 amendment strikes me as unfair.

I’ll go even further: the SEC is attempting to be so scrupulously fair in its 14a-4 amendments on this point (and its solicitation of comments) that it suggests to me that the SEC really really wants to defend the 14a-8 rescission by presenting zero-slate contests as a very viable option on which the SEC has not placed any kind of management-favorable thumb.

Update added upon further reflection: As I think further about the Rule 14a-4 amendments – the problem for the SEC is that, it isn’t wrong: procedurally, if the company has no discretionary authority to vote “no” on zero-slate proxy contests, that puts the company at a bit of a structural disadvantage as compared to the proponent with respect to collecting proxy cards.

On the other hand, it’s very difficult to come up with a rule that gives the company the authority to vote “no” on behalf of shareholders who return the company proxy card, without simultaneously having the company actually describe the proposal in its materials and give shareholders a chance to vote on it – which ends up just recreating Rule 14a-8. So, right now, the SEC is trying to square that circle by having the company put bare bones information about a zero-slate contest its in proxy materials, while giving shareholders a chance to opt-out of having the company vote their shares against the proposal.

But that means, the shareholder is potentially giving the company voting authority without full information on the proposals. One could say, that renders the proxy statement misleading. And that was the original justification for Rule 14a-8 in the first place: It’s misleading for companies to circulate proxy materials without a full description of what will occur at the meeting.

In its release, the SEC devotes a whole footnote to simply rejecting the idea that proxy materials are misleading if they don’t describe all items on the agenda (n.175), but the Commission’s struggle to come up with a 14a-4 rule that (1) allows the company to vote a shareholder’s shares against a proposal without (2) actually describing the proposal in the proxy materials, suggests the old justification for 14a-8 had merit.

Second, in a related release, the SEC proposes to entirely rescind Rule 14a-6. That rule was initially intended to require large shareholders to disclose certain proxy-related communications, but morphed into a convenient platform for shareholders to talk to each other. I previously posted that the SEC last year issued guidance to restrict its use for that purpose, but apparently that wasn’t good enough, because the SEC wants to get rid of it entirely. As I indicated in my post on the subject, there’s evidence that shareholders find that platform useful, and it’s a good way for shareholders to be able to centralize communications with each other; I’ll be sorry to see it go.

And another thing. I have a new paper up! Which, I must admit, kind of compiles a bunch of arguments I’ve made in this blog over the past several years, so it may be old hat for regular readers.

Supreme Amnesia: The Shifting Standards for Fraud-on-the-Market Class Certification

In a series of cases, beginning with Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011), and concluding with Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, 594 U.S. 113 (2021), the U.S. Supreme Court has offered shifting and conflicting understandings of the fraud-on-the-market presumption and its role in class certification. The confusion has filtered down to the lower courts, where class certification determinations have become wide-ranging inquiries into the merits, untethered from the fundamental question whether class treatment is appropriate. This Essay, written for the ILEP 30th Anniversary of the PSLRA Symposium, explores how the Supreme Court has created an impossible class certification maze for parties to navigate, and recommends that courts no longer adjudicate fraud-on-the- market at class certification.

And yet another thing. New Shareholder Primacy podcast! This week, Mike Levin and I talk about what he’s seen with universal proxy in 2026. Here at Apple; here at Spotify; here at YouTube.

Just some things I’ve been meaning to blog about.

First, in Dodiya v. Franklin, VC Will concluded that a take-private involving a conflicted director and conflicted CEO did not satisfy the safe harbors of DGCL 144 and therefore could be the subject of a shareholder fiduciary claim.  The case is generally interesting as one of the early interpretations of the new safe harbors, and in particular, the 144(a)(2) safe harbor, concerning the cleansing effect of a shareholder vote.  I previously worried that the language of the statute might be read to suggest it had altered the definition of what it means for a shareholder vote to be “fully informed,” i.e., that shareholders could cleanse transactions with less information than they were required to have previously.  But VC Will didn’t go that way; instead, she held “Section 144 does not define ‘informed,’ but Delaware common law does,” and relied on prior caselaw in concluding that the proxy was misleading.

Second, this column by Sujeet Indap is a popcorn-worthy report of the trainwreck of a process employed by the Cloudflare board to evaluate a proposal to recapitalize the company in order to extend the founders’ sunsetting control rights. I previously blogged about the case here; the plaintiffs argue that, because they are seeking injunctive relief to block a transaction intended to “deter, delay, or preclude a change of control,” the new safe harbors of DGCL 144 do not apply, and instead, the transaction could only have been cleansed under the old MFW regime.

As I understand it, it is precisely because plaintiffs have a colorable argument that this transaction is outside of DGCL 144’s coverage that they were given access to some discovery.  And that is why we know, for example, one member of the special committee turned to a chatbot to obtain justifications for extending control rights without asking for any countervailing arguments, and selected a particular academic to present on dual-class structures because he already knew the academic would speak in support.

All of which would cast doubt on the good faith of the board’s process for approving the transaction, and the disinterestedness of the directors, even if DGCL 144 did apply, much less the stricter standards of MFW.

But the vast majority of cases won’t involve the quirky exception to DGCL 144’s application, i.e., transactions intended to “deter, delay, or preclude a change of control.”  Instead, they’ll be ordinary conflict transactions, subject to board-level cleansing, with heightened presumptions of director disinterest.  Plaintiff-shareholders will only have access to the materials available under the now-restricted DGCL 220, and courts will evaluate the transactions on the basis of that very limited record.  Which means, I suspect, rather a lot of sketchy chatbot transcripts will never see the light of day.

And finally, we have an interesting direct/derivative dispute playing out before VC David in Charter Township of Shelby Fire & Police Retirement System v. Pershing Square Capital Management, L.P. et al., No. 2026-0184 (this particular type of direct/derivative dispute happens to be an ongoing interest of mine). The plaintiffs allege that HHH’s board improperly gave Bill Ackman’s Pershing Square new shares and contractual control rights, without charging him a control premium and in breach of their fiduciary duties.  And they also allege that, because the transaction involved a transfer of control, their claims should be treated as direct, rather than derivative.

But, post-transaction, Pershing Square does not have majority voting control, as defined by DGCL 144(e)(2)(a).  Which raises an interesting question: Can plaintiffs maintain a direct claim alleging a transfer of control rights, even if, post-transaction, the holder of those rights is not a controller as defined by DGCL 144 for cleansing purposes?  (Of course, this case does not present the cleanest set of facts for answering that question, because the plaintiffs also argue that even if Pershing was not given hard control under DGCL 144(e)(2)(a), it was given practical control alongside its 1/3 voting power under 144(e)(2)(c)). I, of course, have argued that “equity issuances might give rise to direct claims even if they did not result in the creation of a new controlling shareholder, so long as they ended up redistributing specific control rights away from the public shareholders,” but either way, this question takes on new significance in light of SB 313, authorizing boards to enter into broad shareholder agreements.

And another thing. New Shareholder Primacy podcast is up!  Me and Mike Levin answer a mailbag question about the current mishegoss at the SEC over Rule 14a-8.  Here at Apple; here at Spotify; and here at YouTube.