Bespeaks Caution

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  • Trump escaped liability for defrauding investors in the 1980s through a novel legal doctrine called "bespeaks caution," which held that materially false financial projections could not be used to establish liability to investors if the projections contained sufficient disclaimers that the information might be false. “Earlier this month, a judge in West Virginia dismissed a civil suit by 15 tax-free mutual funds against several parties, including underwriter PaineWebber Inc., citing a legal doctrine that protects borrowers who explicitly caution investors about potential risks on a deal. […] In making her ruling, Keeley invoked the ‘bespeaks caution’ doctrine, which is a defense to charges of misrepresentations and omissions. In referring to a 1996 case that developed the doctrine, she said the investors have no grounds to sue because the ‘total mix’ of disclosures in the deal's offering statements contained ‘significant cautionary language. […] While use of the ‘bespeaks caution’ doctrine is well developed in corporate securities law, Ernest Ten Eyck, a former Securities and Exchange Commission accountant who is now a litigation consultant, said this ruling is ‘novel’ because it applies to tax-free debt. ‘'Bespeaks caution' essentially says that if projections are surrounded with enough comments about the high-risk of a project, you are probably protected’ from civil liability, Ten Eyck said. He noted that the doctrine stemmed partly from investor lawsuit against real estate developer Donald Trump, who sold junk bonds that defaulted in the early 1990s. A ruling in that case found that investors were not able to recover damages in a suit because the official statements included enough warnings about potential risks and contingencies that may have affected financial projections, Ten Eycks said.” (Bond Buyer, November 30, 1998)