Securities Litigation Alert: Second Circuit Holds That PSLRA’s Safe Harbor Provisions Shield American Express from Liability

Attached please find a new securities litigation alert entitled "Second Circuit Holds That PSLRA’s Safe Harbor Provisions Shield American Express from Liability." On May 18, 2010, the Second Circuit upheld a district court’s dismissal of a lawsuit brought by investors in American Express against the company and several of its officers and directors. The court held that because the safe harbor provision is "written in the disjunctive," a defendant is not liable under Section 10(b) of the Securities Exchange Act of 1934 for making an allegedly false or misleading forward-looking statement if the statement "is identified and accompanied by meaningful cautionary language or is immaterial or the plaintiff fails to prove that it was made with actual knowledge that it was false or misleading." (Slayton v. American Express Company).

The decision provides much needed guidance to issuers by confirming that the PSLRA safe harbor will protect forward-looking statements that are accompanied by meaningful cautionary language, and that recklessness will not suffice to demonstrate that a defendant made a false or misleading forward-looking statement with fraudulent intent. The court also held that in order to be considered “meaningful,” cautionary language must convey substantive information about factors that realistically could cause results to differ materially from those projected in the forward-looking statement, i.e., boilerplate warnings will not suffice. Separately, the court found that while the PSLRA safe harbor excludes from its protections forward-looking statements that are “included in a financial statement prepared in accordance with [GAAP],” that exclusion does not apply to statements in the MD&A section of a public filing.