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(Article from Securities Law Alert, February 2017) 

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On January 9, 2017, the First Circuit held that “[t]he securities laws do not make it unlawful for a company to publicize an aggressive timeline or estimate for a proposed action without disclosing every conceivable stumbling block to realizing those plans.” Ganem v. InVivo Therapeutics Holdings Corp., 845 F.3d 447 (1st Cir. 2017) (Lipez, J.).

In the case before the court, plaintiffs alleged that a spinal therapy company’s statements concerning the projected timeline for a preliminary human study were false and misleading because defendants failed to disclose “the FDA’s conditions, recommendations, and requirement[s]” for that study. Plaintiffs contended that the FDA’s guidance “inevitably prevented [the company] from following through on its stated timeline.”

The First Circuit found plaintiffs alleged no facts demonstrating that defendants could not comply with the FDA’s suggestions and requirements “within the proposed timeline, a necessary showing for the statements to have been misleading when made.” The court explained that plaintiffs were “left only with the inference that because, in retrospect, the test lagged significantly behind the proposed timeline, the timeline must have always been impossible to achieve.” The First Circuit rejected plaintiffs’ contention as an allegation of “fraud by hindsight.” The court explained that “while greater clairvoyance might have led [the company] to propose a more conservative timeline, [the company’s] failure to make such perceptions does not constitute fraud.”