In August 2011, the U.S. Court of Appeals for the Second Circuit issued a decision that has not received much attention: Fait v. Regions Financial, 655 F.3d 105 (2d Cir. 2011), about the scope of liability under Sections 11 and 12 of the Securities Act. The court held that statements in offering documents about goodwill and loan loss reserves constituted "opinions" and that, as such, plaintiffs needed to allege that the statements were both objectively false and subjectively disbelieved. Id. As lower courts have applied Fait, two key questions have surfaced. First, what constitutes an opinion? And second, what is the difference between subjective disbelief and scienter?
The ‘Fait’ Decision
In Fait, the Second Circuit concluded that "statements [about goodwill and loan loss reserves] were opinions, which were not alleged to have falsely represented the speakers’ beliefs at the time they were made." 655 F.3d at 107. Accordingly, the Second Circuit affirmed District Court Judge Lewis Kaplan’s dismissal of the complaint.
