An Audit “Opinion” Is a Fact Not an Opinion

Last month, the Honorable Jed S. Rakoff, of the United States District Court for the Southern District of New York, upheld claims asserted under Section 11 of the Securities Act of 1933 against Pricewaterhouse Coopers (PwC).  The claims concerned an alleged kickback and bribery scheme by Petróleo Brasileiro S.A. – Petrobras, a Brazilian oil company audited by PwC.  

The Supreme Court’s recent decision in Omnicare, Inc. v. Laborers Dist. Council Constr. Pension Fund, 135 S. Ct. 1318 (2015) clarified the difference between statements of fact and statements of opinion.  PwC moved to dismiss the plaintiffs’ Section 11 claim pursuant to Omnicare arguing that PwC’s audit opinions were protected statements of opinion.

Judge Rakoff found that audit opinions were not ‘opinions’ as discussed in Omnicare.  Specifically, “an auditor’s ‘opinion’ is a term of art, the meaning of which may not be entirely synonymous with the more everyday use of the word discussed in Omnicare.”  Judge Rakoff also disagreed with PwC’s contention that “financial statements are nonactionable opinions” and held that financial statements “are actionable under § 11 as facts.”  Therefore, in light of Petrobas’ alleged bribe payments inflating the actual value of the company’s fixed assets reported in financial statements in the PwC audit opinion, and statements in the same that Petrobras had “effective internal controls,” PwC’s audit opinion was properly alleged to be a misleading statement of fact.

Whether plaintiffs will ultimately be successful in their claims against PwC remains to be determined.  However, Judge Rakoff’s decision should be welcome by investors as a positive development in securities litigation.