Opinion ID: 740651
Heading Depth: 1
Heading Rank: 3

Heading: Liability for Forecasts and Optimistic Statements in

Text: Analysts' Reports 44 Appellants contend that Appellees can be liable for projections, forecasts and other information contained in various analysts' reports because the Appellees adopted these forecasts and projections. (Statements G-J, L-M, O, Q, T, V-X). A corporation or its insiders may be liable for analysts' forecasts or projections only if they adopt them by putting their imprimatur on the forecast. In re Syntex Corp. Sec. Litig., 95 F.3d 922, 934 (9th Cir.1996); In re Verifone Sec. Litig., 784 F.Supp. 1471, 1486 (N.D.Cal.1992), aff'd, 11 F.3d 865 (9th Cir.1993). This occurs when the corporation sufficiently entangle[s] itself with the analysts' forecasts to render those predictions 'attributable to it.'  Elkind v. Ligget & Meyers, Inc., 635 F.2d 156, 163 (2d Cir.1980). Entanglement requires a two-way flow of information between the corporate insider and the analyst preparing the challenged forecast. Stack v. Lobo, 903 F.Supp. 1361, 1371-72 (N.D.Cal.1995); see Syntex Sec. Litig., 95 F.3d at 934. Therefore, a plaintiff seeking to hold a corporation or its insiders liable for an analyst's predictions must demonstrate that a corporate insider provided misleading information to an analyst, that the analyst relied on the information and that the insider somehow endorsed or approved the report prior to or after its publication. Stack, 903 F.Supp. at 1372. 45 Here, the district court properly concluded that the Appellants have not raised a triable issue as to whether the Appellees sufficiently entangled themselves with any particular analyst's report. Appellants have failed to put forth evidence that Rodgers or Goldman adopted any of the analysts' reports by reviewing any of the reports after the analysts had drafted them and endorsing the spin the analysts put on the information they received from Cypress or by attesting to the accuracy of any of the analysts' reports. Appellants have produced copies of several of the reports at issue each possessing a facsimile transmission line suggesting that the analysts sent the reports to Cypress. (ER 318:448-56). However, each of these faxed copies indicates that they were faxed after the article was published, and Appellants have offered no evidence that Cypress communicated with the reporters after receiving these copies--let alone evidence that Cypress approved the articles which the analysts sent to it. 3 In fact, both Rodgers and Goldman testified that Cypress maintained an express policy prohibiting officers from commenting on analysts' projections. (SR 280: Goldman Decl. pp 17, 21; SR 280: Rodgers Decl. p 69; SR 350: Goldman Dep. at 338-39; SR 350: Rodgers Dep. at 691). In response, Appellants have offered evidence that Cypress conducted quarterly teleconferences with analysts and that Rodgers and Goldman might have spoken with analysts who contacted Cypress outside of these teleconferences. However, such communications evidence only a one-way flow of information from Cypress to analysts and from the analysts to the market. This type of communication is insufficient to hold a corporation liable for third-parties' optimistic statements and projections. See Syntex Sec. Litig., 95 F.3d at 934 (analysts' reports predicting high earnings unactionable where the reports were the culmination of a one-way flow of information from corporate insiders to analysts and the corporation had a no-comment policy). 46 Furthermore, contrary to the Appellants' argument, nothing in the transcript of the teleconferences or Rodgers's deposition testimony suggests that Cypress provided anything more than general factual and historical information about Cypress. For example, contrary to Appellants' characterization, Rodgers's statement during the January 1992 teleconference that we can work with you to develop numbers over the next few weeks to get your estimates accurate, (ER 280:266), does not indicate that Cypress gave analysts inside financial information. Rather, Rodgers made this statement while answering a question regarding the five investments Cypress made in 1991. (Id.) When the statement is read in context, it demonstrates that Rodgers offered to provide analysts more accurate information about the costs of these investments. Merely providing analysts with historical information and correcting factual inaccuracies is not sufficient to establish entanglement. In re Caere Corporate Sec. Litig., 837 F.Supp. 1054, 1059 (N.D.Cal.1993); see Elkind, 635 F.2d at 163 (evidence that the corporation made suggestions as to factual and descriptive matters did not compel a finding of entanglement where evidence also indicated that analysts knew they were not being made privy to the corporation's internal financial projections).