In this podcast episode, we discuss the background for investor lawsuits against companies, and how the use of forward-looking statements and cautionary statements are designed to avoid those lawsuits. Key points made in the episode are:
There used to be many lawsuits from investors when a company’s stock price dropped, so companies tended to avoid making any public statements that could worsen their legal outcomes.
Under the 1995 Private Securities Litigation Reform Act’s safe harbor clause, companies can issue forward-looking statements, as long as they are identified as such, and are accompanied by cautionary statements. These cautionary statements can refer to a complete set of identified risks, such as a firm might identify in its annual Form 10-K.
Forward looking statements include financial projections, plans, statements about future performance, and discussions of the underlying factors associated with those projections, plans, and/or statements.
The cautionary statements may be bigger than the rest of a press release.
You should clear all public releases with the company legal staff, to avoid shareholder lawsuits.