United States Court of Appeals for the Second Circuit in New York, NY. (Bjoertvedt/Wikimedia)
A recent appeals court decision may give companies some comfort about general statements of internal controls, Paul, Weiss, Rifkind, Wharton & Garrison chairman Brad Karp wrote in a blog post published Sunday on the Harvard Law School Forum on Corporate Governance and Financial Regulation.
The case in question, Carpenters Pension Trust Fund of St. Louis, et al. v. Barclays PLC, et al. is, Karp pointed out, an example of the shareholder litigation fallout following the LIBOR scandal.
In the case, which the U.S. Court of Appeals for the Second Circuit ruled on April 25, a group of shareholders sued Barclays based on an assertion that the bank had knowingly misrepresented its Libor rates. In arguing their case, the plaintiffs cited Barclays’ own statement that “[m]inimum control requirements[had] been established for all key areas of identified risk.”
A lower court had dismissed Barclays’ statement about minimum control requirements as generic “puffery,” which could not be relied on. The Second Circuit court upheld that aspect of the previous decision, Karp noted.
“It rejected efforts by the plaintiffs to base a misrepresentation claim on general statements about corporate internal controls that did not specify the particular area in which alleged misconduct later occurred,” he wrote.
As a result, Karp wrote, “Carpenters Pension may provide comfort to companies subject to SEC reporting requirements that general statements about the presence of internal controls are insufficiently specific as a matter of law to establish a material misstatement whenever a company admits a failure of controls. The Second Circuit reaffirmed the principle that alleged misstatements and omissions must specifically concern the alleged fraud.”