May 13, 2013 Articles

Section 11 and Auditors' "Opinion" Statements

A plaintiff's inability to plead both objective and subjective falsity may bar many claims under section 11 of the Securities Act against outside auditors.

By Dana S. Douglas and Michael Rowe

Independent auditors and CPA firms have long been the target of plaintiffs’ attorneys seeking to impose liability under federal securities laws. But those auditors may have a new shield to deflect frivolous claims. Indeed, courts in a growing number of jurisdictions have required that plaintiffs asserting a section 11 claim under the Securities Act of 1933 must plead both objective and subjective falsity to properly allege a misstated “opinion” statement with respect to financial-statement line items.

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