The Legal Intelligencer reports that Senior U.S. District Judge Thomas N. O’Neill Jr. of The U.S. District Court for the Eastern District of Pennsylvania found that the allegedly false statements were all protected by the “safe harbor” in securities law because they amounted to nothing more than “forward-looking” statements that were accompanied by “meaningful cautionary” statements putting investors on notice of the risk.
He also said he found the statements to be “immaterial and not actionable because they are puffery, vague and non-specific expressions of corporate optimism on which reasonable investors would not have relied,” according to the news report.
The plaintiffs’ team argued that three executives—former Chairman and CEO John W. Rowe; former Chief Financial Officer Alan Bennett; and Craig Callen, a former senior vice president in charge of strategic planning—had successfully duped investors with the “disciplined pricing mantra” in order to drive the stock price up so that they could “unload more than 1.2 million Aetna shares for more than $50 million in profits.” O’Neill focused first on the specific statements alleged to be false and concluded that none of them could support a securities fraud claim. Aetna specifically defined “disciplined,” O’Neill noted, to mean the company’s expectation of “achieving premium yields that are in line with our medical cost trend.”
The Legal Intelligencer said that based on that definition, O’Neill concluded, it was clear that the term “disciplined pricing” meant that Aetna expected its pricing would be “in line with its projected medical cost trend, a specific measurement of future performance” – falling within the Private Securities Litigation Reform Act’s definition of a forward-looking statement as a “statement of future performance” and “a statement of the plans and objectives of management for future operations.”
Plaintiffs’ lawyers pointed out that the statements were partly phrased in the present tense, but O’Neill said “the fact that a statement is phrased in the present tense does not mean that it is not forward-looking.” Even if the forward-looking statements could be deemed material, O’Neill said, they would still be protected by the PSLRA’s safe harbor because each statement was accompanied by “meaningful cautionary statements.”
“A corporation need not provide every detail of a potential risk to qualify for safe harbor treatment; instead, it need only provide sufficient detail to make investors aware of the source, magnitude and certainty of the contemplated risk,” O’Neill wrote, according to the news report.
Finally, O’Neill found that the complaint was flawed because it failed to allege with particularity that the executives knew the statements were false.
The suit alleged that Aetna executives repeatedly assured investors that the company was using a “disciplined pricing strategy” in order to maintain and lower “medical cost ratio,” or MCR, while they had secretly abandoned discipline and instead set out to capture market share by under-pricing policies. Aetna announced disappointingly high MCR figures in early and mid-2006 leading to plunges in the stock prices that effectively eradicated billions in shareholder value.
The court’s opinion is here.