Materiality of a Forward-Looking Statement

• Main Authors: JUAN,CHIU-SHENG, 阮秋盛
• Other Authors: CHUANG,YUNG-CHENG
• Format: Others
• Language: zh-TW
• Published: 2015
• Online Access: http://ndltd.ncl.edu.tw/handle/48287323532418149642

碩士 === 東吳大學 === 法律學系 === 103 === Financial reports help investors to realize a company’s past financial conditions, but it is more important to outline its future profitability by analyzing forward-looking statements for all investors. However no one can predict precisely what will happen in the future because we are human beings, not gods, and therefore have only limited rationality which causes us prone to mistakes. In addition, predicted results will be influenced by what is happening in the world. In other words, forward-looking statements will be changed by subjective and objective factors which make predicted results deviate from actual ones. From a constitutional law perspective, human beings have freedom of speech which is protected by constitutional law, but the protections have different levels. The forward-looking statements are opinions rather than facts, and therefore they should be protected absolutely by constitutional laws. Above all, it is hard to think that the forward-looking statements have the materiality which can change investors’ investment strategies significantly. Accordingly, this article believes that when forward-looking statements prepared by the company are not accurate, the company shall not be liable for the statements. Furthermore, when the company has incurred material changes, whether the company has the duty to update remains unclear because the Private Securities Litigation Reform Act does not provide that companies have such duty. For this question, differences of opinion break the court decisions up into camps, and this article attempts to answer the question from a constitutional point of view. However, if management intends to obtain personal profits by making fraudulent forward-looking statements, such statements will become criminal tools and can be determined to be true or false, and thus they have a factual nature rather than an opinion. In such a case, we should decide whether the fraudulent forward-looking statements have the materiality or not. In Basic Inc. v. Levinson, the Supreme Court left the question whether the “probability/magnitude balancing approach” can be used on other kinds of soft information besides merger negotiations. A lot of court decisions and scholars disagree on the debate, and the same debate occurs in Taiwan because its Securities and Exchange Act inherited laws from the American system. Therefore, this article attempts to clarify the distinction between hard and soft information and explain why the “reasonable investor standard” should not apply to the latter.