Fleming is a publicly held company involved in litigation with another company over a trade dispute. During the litigation, the officers of Fleming disclosed the litigation and the relevant factual basis for the litigation in its SEC-required disclosure materials. The litigation resulted in a $200 million jury verdict against Fleming, causing Fleming’s stock to drop precipitously. After an appellate court reversed part of the verdict and Fleming settled the case for $20 million, the stock regained some of its previous value but never returned to its prelitigation levels. A group of shareholders sued Fleming’s officers and directors, claiming that the disclosure of litigation was not detailed enough, did not disclose the potential downside risks of a losing jury verdict, and thus constituted a misleading statement and omissions in violation of the 1934 Securities Exchange Act. Fleming’s officers defended that they disclosed all known facts of the litigation and were protected by the Private Securities Litigation Reform Act’s safe-harbor provisions because they acted in good faith and disclosed all the facts they were privy to at the time.

CASE QUESTIONS

1. Who prevails and why?

2. Should Fleming’s officers be protected by the PSLRA?