Opinion ID: 3011060
Heading Depth: 2
Heading Rank: 2

Heading: The Point Statement

Text: Plaintiffs contend the Point statement subjects Advanta to liability under section 10(b) of the Exchange Act, which makes it unlawful for any person to use or employ, in connection with the purchase or sale of any security, . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe. 15 U.S.C.A. S 78j(b) (West Supp. 1999). Rule 10b-5, in turn, makes it unlawful to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made in the light of the circumstances under which they were made, not misleading . . . in connection with the purchase or sale of any security. 17 C.F.R. S 240.10b-5(b) (1998). These provisions create a private right of action for plaintiffs to recover damages for false or misleading statements or omissions of material fact that affect trading on the secondary market. Burlington Coat Factory, 114 F.3d at 1417; see also In re Craftmatic Sec. Litig., 890 F.2d 628, 639 (3d Cir. 1989) (federal securities law recognizes a right of action for omitting material facts that would assume significance in the deliberations of a reasonable shareholder). 16 The Reform Act establishes a safe harbor protecting certain forward-looking statements from Rule 10b-5 liability. See 15 U.S.C.A. S 78u-5 (West Supp. 1999). Regarding statements made by natural persons (as opposed to business entities), the Act provides that a forwardlooking statement is shielded by the safe-harbor provision unless the plaintiff proves it was made with actual knowledge . . . that the statement was false or misleading. Id. S 78u-5(c)(1)(B)(i). The District Court held the Point statement was forward-looking and qualified for protection under the Act because [p]laintiffs' catch-all allegation that all speakers knew their statements were false when made is too broad and Alter's comments indicate nothing more than Advanta's failure to follow through exactly as planned on its proposed interest increase, rather than purposeful intent to fool the public. Advanta, mem. op. at 23. The Advanta shareholders contend that the Point statement was not forward-looking, and that even if it was, it was made with actual knowledge of its false and misleading nature and therefore does not qualify for protection. Under the Reform Act, a statement is forward-looking if, inter alia, it is a statement containing a projection of revenues, income (including income loss), earnings (including earnings loss) per share, capital expenditures, dividends, capital structure, or other financial items. 15 U.S.C.A. S 78u-5(i)(1)(A) (West Supp. 1999). The first portion of the Point statement reads, Over the next six months Advanta will experience a large increase in revenues. . . . In our view, this portion of the statement clearly qualifies as a projection of revenues and therefore is forwardlooking. The remaining portion of the statement,as [Advanta] converts more than $5 billion in accounts that are now at teaser rates of about 7% to its normal interest rate of about 17%, is a statement of Advanta's plan to reprice its teaser-rate accounts to a rate of about 17%. We believe this part of the statement is forward-looking as well, because it is a statement of the plans and objectives of management for future operations, including plans or objectives relating to the products or services of the issuer. Id. S 78u-5(i)(1)(B). Consequently, we hold that the entire Point statement is forward-looking within the meaning of the Act. 17 Nonetheless, the safe harbor will not apply if the statement was made with actual knowledge that the statement was false or misleading. Id. S 78u-5(c)(1)(B)(i). Plaintiffs argue the falsity of the Point statement is proved by Dennis Alter's subsequent comment that we were probably not as aggressive as we could have been[repricing our rates] . . . . Instead of repricing to 18 percent we repriced closer to 13 or 14 percent in order to retain our image and the luster of being a low-cost provider. Because Point was Advanta's spokesperson, plaintiffs argue, she must have possessed actual knowledge that Advanta was not repricing to 17 percent, but only 13 or 14 percent, at the time the statement was made. Plaintiffs further contend that even if Point did not possess actual knowledge, the failure of Advanta's executives to repudiate the statement constituted a ratification of it. The complaint does not plead any specific facts to support an inference that Point, or anyone else at Advanta, had actual knowledge of her statement's falsity. The complaint's only specific factual allegation regarding the falsity of the Point statement is the existence of the Alter statement some nine months later. But the Point statement and the Alter statement are not inconsistent: Point stated in September 1996 that Advanta planned to reprice its teaser rates to 17%; nine months later, Alter expressed regret that Advanta did not reprice to that level. Even assuming the two statements referred to precisely the same accounts, it does not follow that Point's statement was false: Advanta may have intended to reprice the accounts to 17 percent at the time of the Point statement and subsequently changed its business strategy. As the defendants point out, Advanta owed no duty to update the Point statement. See 15 U.S.C.A. S 78u-5(d) (West Supp. 1999) (Nothing in this section shall impose upon any person a duty to update a forward-looking statement.); Burlington Coat Factory, 114 F.3d at 1433 ([T]he voluntary disclosure of an ordinary earnings forecast does not trigger any duty to update.).9 At best, comparison of the Point and _________________________________________________________________ 9. We also reject plaintiffs' argument that the Alter statement, along with proposed corrective measures announced by Advanta in the wake of the $20 million loss, constitute admissions of securities fraud liability. If this were so, all companies that suffer losses and then publicly discuss how they plan to improve earnings in the future would be guilty of admissions that they defrauded investors. 18 Alter statements suggests that Advanta made a series of unwise business decisions in its attempt to attract new customers. But section 10(b) does not  `regulate transactions which constitute no more than internal corporate mismanagement.'  Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 479 (1977) (quoting Superintendent of Ins. v. Bankers Life & Cas. Co., 404 U.S. 6, 12 (1971)). Plaintiffs' complaint fails to plead any other facts supporting an inference that the Point statement was made with actual knowledge of its falsity. Accordingly, we believe the statement was protected by the safe-harbor provision for forward-looking statements.