At a recent oral argument on securities claims against Coca-Cola, the Eleventh Circuit expressed strong skepticism of the sufficiency of Plaintiffs ' allegations, according to an article posted yesterday on law.com. Plaintiffs had alleged that Coke made false and misleading statements in 2003 and 2004 giving an overly optimistic view of Coke's business in order to artificially inflate the price of the stock.
The lower court had dismissed the complaint, finding that the statements were mere "puffery," and not material statements that investors would rely on. Coke had stated, for example, that the company was poised for a strong year in 2004.
The law permits companies to make sales statements that are too vague to be relied on, and the Eleventh Circuit seemed to suggest that Coke's statements largely fell within the definition of puffery. There has been criticism that judges have been too quick to dismiss securities fraud claims on this basis. For example, some research suggests that investors actually rely on the same types of statements that courts have dismissed as non-material puffery. See, e.g., Stefan J. Padfield, "Is Puffery Material to Investors? Maybe We Should Ask Them." U. Penn. J. Bus. & Emp. L., Forthcoming Available at SSRN: http://ssrn.com/abstract=1013416. On the Eleventh Circuit panel addressing the Coca-Cola argument, Judge Carnes stated that he was "not fond of the way the law is" regarding securities regulation, "but it is that way." For now, at least, Coke and other companies are likely to escape liability for such puffery, regardless of its actual impact on investors.