The United States Supreme Court recently ruled in favor of a listed company when it was charged with making untrue statements in connection with its public offering of shares of stock. This latest decision may provide similarly situated companies with a lack of knowledge of crime-fraud defense regarding incorrect statements of opinion made in the course of required public disclosures.
Omnicare, Inc. is a pharmaceutical services company that offered its common shares of stock to the public in 2005. As part of registration requirements for the offering, the company issued public statements that in its view, it had complied with federal and state laws.
The Federal Government later sued Omnicare for allegedly receiving illegal payments from drug manufacturers. This prompted pension funds that had earlier invested in the company’s public share offering to charge Omnicare with securities fraud, alleging that its public statements regarding the company’s legal compliance were untrue. The pension funds also alleged that the company omitted facts necessary to make the questioned statements not misleading.
Under federal law, an investor can sue the company issuing securities if its registration statement:
- Contains an untrue statement of a material fact
- If it omits a material fact necessary to make its registration statements not misleading
The district court dismissed all charges against Omnicare and found that the complainants failed to prove that Omnicare knew that its registration statements were false. On appeal, the Sixth Circuit reversed the ruling.
Supreme Court Ruling
The Supreme Court reversed the appellate court and ruled that Omnicare’s registration statement on its legal compliance is not a statement of fact but of an opinion. It can therefore not become false even if the opinion turns out to be incorrect. But the Supreme Court remanded the case for a determination whether the company omitted facts necessary to make its opinion on legal compliance not misleading.
Fraud crimes can be complex cases involving technical definitions that can spell the difference between conviction and dismissal of charges.
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