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(Article from Securities Law Alert, February/March 2019) 

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On March 5, 2019, the Second Circuit affirmed dismissal of a securities fraud action alleging that a health services company made misstatements concerning its regulatory compliance. Singh v. Cigna Corp., 2019 WL 1029597 (2d Cir. 2019) (Cabranes, J.). The court cautioned that plaintiffs cannot assert “a prima facie case of securities fraud” merely by “point[ing] to banal and vague corporate statements affirming the importance of regulatory compliance” coupled with “significant regulatory violations.” The court emphasized that “such generic statements do not invite reasonable reliance.”

The Second Circuit found that compliance-related statements in the company’s Code of Ethics were “textbook example[s] of puffery” because they were simply “general declarations about the importance of acting lawfully and with integrity.” The court explained that broad and non-specific “statements about reputation, integrity, and compliance with ethical norms . . . are too general to cause a reasonable investor to rely upon them.”

The Second Circuit further held that a reasonable investor would not rely on the “tentative and generic” compliance-related statements in the company’s SEC filings, particularly because those statements were “framed by acknowledgements of the complexity and numerosity of applicable regulations.” The court observed that “[s]uch framing suggests caution (rather than confidence) regarding the extent of [the company’s] compliance.” The court also noted that in cases where it has found compliance-related statements to be “actionable assurances of actual compliance, the descriptions of such [compliance-related] efforts were far more detailed” than those at issue in the case before it.