Opinion ID: 691552
Heading Depth: 3
Heading Rank: 3

Heading: The analyst's report

Text: 42 Finally, Appellants contend that statements made in an independent market analyst's report concerning Legent's past performance were materially false and misleading. However, before Legent can be held liable for the analyst's statements, Appellants must first show that the analyst's report should be attributed to Legent. Raab, 4 F.3d at 288 (company cannot be held liable for statements contained in independent analyst's report absent proof that company exercised sufficient control over report to attribute report's statements to the company). 43 In Raab, we found that General Physics was not liable for statements in a report by Goldman Sachs because the allegations were insufficient to show that General Physics exercised the kind of control over the Goldman Sachs report that would render it liable for statements made therein. Id. at 289. We noted that: 44 The securities laws require General Physics to speak truthfully to investors; they do not require the company to police statements made by third parties for inaccuracies, even if the third party attributes the statement to General Physics. Without control over Goldman Sachs' report, any statement made by General Physics personnel could be taken out of context, incorrectly quoted, or stripped of important qualifiers. 45 Id. at 288. We indicated that, in order to be liable for statements in an analyst's report, a company must  'sufficiently entangle[ ] itself with the analyst['s] forecasts to render those predictions attributable to it. '  Id. (citing Elkind v. Liggett & Myers, Inc., 635 F.2d 156, 163 (2d Cir.1980)). As further explained in Elkind, 46 We have no doubt that a company may so involve itself in the preparation of reports and projections by outsiders as to assume a duty to correct material errors in these projections. This may occur when officials of the company have, by their activity, made an implied representation that ... they have reviewed [the outsider's information and determined that it] is true or at least in accordance with the company's views. 47 Elkind, 635 F.2d at 163. 48 On June 14th, Scott Smith, an analyst with Donaldson, Lufkin, & Jenrette who had participated in the April conference calls, visited Legent's corporate headquarters and spoke with Franchon Smithson (Senior Vice President and Chief Financial Officer), David Wetmore (Executive Vice President and Chief Operating Officer), and Bill Drummey (head of North American Sales). Smith released a report on June 16th revealing Legent's increased confidence in its ability to achieve earnings expectations of $0.45-0.55 for the third quarter and stating that [m]anagement noted that business has been on target for April and May. (J.A. 2638.) Apparently this report was circulated among other market analysts, although the report was marked DLJ--CONFIDENTIAL INFORMATION FOR INTERNAL USE. (J.A. 2638.) Smith testified that the report was an amalgamation of information given to him by Wetmore, Smithson, and Drummey. He further testified that he could not specifically remember who provided him with what information, but that his contemporaneous notes indicated that Smithson had told him pipeline strong, sales so far on target. 22 (J.A. 1441.) Smithson, however, testified he did not tell Smith that Legent was on target or that Legent had increased confidence in its ability to earn 45 to 55 cents a share in the third quarter. (J.A. 861-864.) 49 Appellants contend that a jury should decide whether the statements in Smith's report were material, and also whether they are attributable to Legent because (1) Legent provided Smith with the information in his report and (2) Smithson reviewed the report several days after its release but made no effort to correct the statements therein. They contend that Legent knew the report was fraudulent because by the time of Smith's visit, Legent's internal documents revealed that it could not make its third quarter earnings per share estimates, 23 and therefore it had a duty to correct the report. 24 50 We find no evidence that Legent sufficiently entangled itself with Smith's report to make his statements attributable to the company, or that it place[d] its imprimatur, expressly or impliedly, on Smith's report. Elkind, 635 F.2d at 163. Smith's visit to Legent was unlike the conference calls, in which Legent released information to analysts in order to promote much more concise and precise[street] estimates and guidance. (J.A. 1695.) Indeed, the fact that Legent used conference calls to ensure that all of the market analysts heard the same information at the same time works against any inference that we should attribute Smith's report to Legent. 51 The Smith report did not directly quote Legent's management or reveal who supplied the information to Smith. There is no evidence that Legent had any control over the contents of the report, or, even if Legent had such control, that the report was so inconsistent with Legent's internal estimates that it would require Legent to correct the statements in the report. Unlike the conference calls, which are transcribed in the record, there is nothing in the record from which to determine whether any statement by [Legent] personnel [was] taken out of context, incorrectly quoted, or stripped of important qualifiers in Smith's report. Raab, 4 F.3d at 288. Although Smith's report undoubtedly expressed his impressions of his visit with Legent's management, we find no evidence from which a reasonable jury could infer that Legent had sufficient control over Smith's report to hold it liable for the statements made therein. Thus, we affirm the judgment as a matter of law against the claims arising out of Smith's June 16th report.