How Should Companies Pay When They Lie?
Is it a lie if you don't know what you're saying isn't true? This eternal philosophical question, well-known to 6-year-olds everywhere, is now before the U.S. Supreme Court -- and the stakes are hundreds of millions of dollars' worth of securities class-action litigation. To be more precise, the court is considering whether Section 11 of the Securities Exchange Act of 1933, which makes issuers liable for making material false statements in their registration statements, applies when the issuer says it "believes" it is complying with the law, even when objectively speaking it isn't. The appellate courts are split on the issue, and the Supreme Court's resolution will have significant consequences for any issuing company that falls afoul of regulators and wants to avoid paying out to a shareholder class action.
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