Rethinking Cautions Accompanying Investment Predictions

We are constantly bombarded with warnings about dangers to our health or wellbeing. Sometimes, however, the warnings might facilitate the danger. In a new article, I show how the cautionary statements that commonly accompany predictions of corporate performance fall into this camp.

The judicially created “bespeaks caution doctrine”[1] and a highly controversial provision in the Private Securities Litigation Reform Act (PSLRA)[2] enable speakers to avoid liability for failed predictions regarding corporate performance through cautions that accompany the predictions. Unfortunately, the cautions in court decisions applying these defenses constitute misdirection which, if anything, facilitates securities fraud.

To understand why, … Read more