Amicus Curiae Brief — BDO USA, LLP, Petitioner v. New England Carpenters Guaranteed Annuity and Pension Funds, et al.

No. 24-1151

IN THE

Supreme Court of the United States

BDO USA, LLP,

Petitioner,

v.

NEW ENGLAND CARPENTERS GUARANTEED ANNUITY

AND PENSION FUNDS, ET AL.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Brief of The Chamber of Commerce of the

United States of America as Amicus Curiae in

Support of Petitioner

JANET GALERIA

MARIA C. MONAGHAN

U.S. CHAMBER LITIGATION

CENTER

1615 H Street, NW

Washington, DC 20002

(202) 463-5337

ELAINE J. GOLDENBERG

Counsel of Record

ANDRA LIM

MUNGER, TOLLES & OLSON LLP

601 Massachusetts Ave. NW

Suite 500E

Washington, DC 20001

(202) 220-1100

elaine.goldenberg@mto.com

Counsel for Amicus Curiae

i

TABLE OF CONTENTS

Page

INTERESTS OF AMICUS CURIAE ........................... 1

INTRODUCTION AND SUMMARY OF

ARGUMENT ..................................................... 2

ARGUMENT ................................................................ 4

I.

II.

The Second Circuit’s Decision Could

Sweep Far Beyond the Specific Legal

And Factual Context In Which It Arose .......... 4

A.

The Second Circuit’s Materiality

Holding Could Be Applied To

Other Securities Statutes That

Have A Materiality Element.................. 4

B.

The Second Circuit’s Materiality

Holding Could Be Applied To

Many Different Kinds of

Statements In Investor-Facing

Materials Of Compliance With

Accepted Professional Standards

Or Practices .......................................... 10

The Second Circuit’s Materiality

Holding Will Increase The Cost Of

Business And Harm The Economy ................. 19

CONCLUSION .......................................................... 22

ii

TABLE OF AUTHORITIES

Page(s)

FEDERAL CASES

In re Adams Golf, Inc. Securities Litig.,

381 F.3d 267 (3d Cir. 2004) .................................... 6

Adams v. Standard Knitting Mills, Inc.,

623 F.2d 422 (6th Cir. 1980) ................................ 11

In re AOL Time Warner, Inc. Securities

and “ERISA” Litig.,

381 F. Supp. 2d 192 (S.D.N.Y. 2004) ..................... 7

Atlas v. Accredited Home Lenders

Holding Co.,

556 F. Supp. 2d 1142 (S.D. Cal. 2008) ................. 15

Basic Inc. v. Levinson,

485 U.S. 224 (1988) .......................................... 2, 13

Blue Chip Stamps v. Manor Drug Stores,

421 U.S. 723 (1975) ........................................ 20, 21

Central Bank of Denver, N.A. v. First

Interstate Bank of Denver, N.A.,

511 U.S. 164 (1994) .................................... 2, 20, 21

Chiarella v. United States,

445 U.S. 222 (1980) ................................................ 4

City of Westland Police and Fire

Retirement Sys. v. MetLife, Inc.,

129 F. Supp. 3d 48 (S.D.N.Y. 2015) ..................... 17

iii

TABLE OF AUTHORITIES

(Continued)

Page(s)

In re Clearly Canadian Securities Litig.,

1999 WL 707737 (N.D. Cal. Sept. 3,

1999)...................................................................... 20

In re Constar Int’l Inc. Securities Litig.,

585 F.3d 774 (3d Cir. 2009) .................................... 7

In re Daou Systems, Inc.,

411 F.3d 1006 (9th Cir. 2005) .............................. 11

Deephaven Private Placement Trading,

Ltd. v. Grant Thornton & Co.,

454 F.3d 1168 (10th Cir. 2006) .......................... 8, 9

In re Donald J. Trump Casino Securities

Litig.–Taj Mahal Litig.,

7 F.3d 357 (3d Cir. 1993) ........................................ 6

FDIC v. RBS Acceptance Inc.,

611 F. Supp. 3d 1089 (D. Colo. 2020)................... 11

Freedman v. Value Health, Inc.,

2000 WL 630916 (D. Conn. Mar. 24,

2000)...................................................................... 13

Greenfield v. Flying Diamond Oil Corp.,

1980 WL 1376 (S.D.N.Y. Feb. 26,

1980)........................................................................ 5

Kitchens v. U.S. Shelter,

1988 WL 108598 (D.S.C. June 30,

1988).......................................................... 10, 12, 13

iv

TABLE OF AUTHORITIES

(Continued)

Page(s)

In re Lehman Bros. Securities and

ERISA Litig.,

799 F. Supp. 2d 258 (S.D.N.Y. 2011) ................... 11

Lloyd v. CVB Fin. Corp.,

2012 WL 12883522 (C.D. Cal. Jan.

12, 2012)................................................................ 15

In re Lottery.com, Inc. Securities Litig.,

715 F. Supp. 3d 506 (S.D.N.Y. 2024) ................... 17

Malin v. XL Capital Ltd.,

499 F. Supp. 2d 117 (D. Conn. 2007) ................... 14

Matrixx Initiatives, Inc. v. Siracusano,

563 U.S. 27 (2011) ................................................ 19

Merrill Lynch, Pierce, Fenner & Smith

Inc. v. Dabit,

547 U.S. 71 (2006) .................................................. 2

In re Morgan Stanley Info. Fund

Securities Litig.,

592 F.3d 347 (2d Cir. 2010) .................................... 6

Morrison v. National Australia Bank

Ltd.,

561 U.S. 247 (2010) .............................................. 21

In re NAHC, Inc. Securities Litig.,

306 F.3d 1314 (3d Cir. 2002) .................................. 5

v

TABLE OF AUTHORITIES

(Continued)

Page(s)

In re New Century,

588 F. Supp. 2d 1206 (C.D. Cal. 2008)................. 15

Omnicare, Inc. v. Laborers District

Council Construction Industry

Pension Fund,

575 U.S. 175 (2015) ........................................ 17, 18

Pension Committee of Univ. of Montreal

Pension Plan v. Banc of America

Securities, LLC,

446 F. Supp. 2d 163 (S.D.N.Y. 2006) ................... 11

Rombach v. Chang,

355 F.3d 164 (2d Cir. 2004) .................................... 7

In re Sanofi Securities Litig.,

87 F. Supp. 3d 510 (S.D.N.Y. 2015) ....................... 8

SEC v. Mozilo,

2009 WL 3807124 (C.D. Cal. Nov. 3,

2009)...................................................................... 16

In re Stone & Webster, Inc.,

414 F.3d 187 (1st Cir. 2005) ................................. 11

Stoneridge Inv. Partners, LLC v.

Scientific-Atlanta,

552 U.S. 148 (2008) .............................................. 20

In re SunEdison, Inc. Securities Litig.,

300 F. Supp. 3d 444 (S.D.N.Y. 2018) ..................... 7

vi

TABLE OF AUTHORITIES

(Continued)

Page(s)

In re Suprema Specialties, Inc.

Securities Litig.,

438 F.3d 256 (3d Cir. 2006) ................................ 8, 9

Tellabs, Inc. v. Makor Issues & Rights,

Ltd.,

551 U.S. 308 (2007) .......................................... 9, 19

Tongue v. Sanofi,

816 F.3d 199 (2d Cir. 2016) .................................... 7

TSC Indus., Inc. v. Northway, Inc.,

426 U.S. 438 (1976) .......................................... 2, 19

United States v. Willis,

737 F. Supp. 269 (S.D.N.Y. 1990) .......................... 4

Varjabedian v. Emulex,

888 F.3d 399 (9th Cir. 2018) .................................. 5

Waterford Township Police & Fire

Retirement Sys. v. Regional

Management Corp.,

2016 WL 1261135 (S.D.N.Y. Mar. 30,

2016)...................................................................... 15

Weiss v. SEC,

468 F.3d 849 (D.C. Cir. 2006) .............................. 18

Woolgar v. Kingstone Companies, Inc.,

477 F. Supp. 3d 193 (S.D.N.Y. 2020) ................... 14

vii

TABLE OF AUTHORITIES

(Continued)

Page(s)

FEDERAL STATUTES

15 U.S.C. 77k ......................................................... 7, 12

15 U.S.C. 77k(a) ........................................................ 4-9

15 U.S.C. 77l ................................................................ 7

15 U.S.C. 77l(a)(2) .................................................... 4-9

15 U.S.C. 78j(b) ................................................. 2-10, 20

15 U.S.C. 78n(a) ........................................................... 5

15 U.S.C. 78n(e) ........................................................... 5

15 U.S.C. 78r ..................................................... 4-6, 8, 9

FEDERAL REGULATIONS

17 C.F.R. 240.10b-5 .......................................... 2-10, 20

LEGISLATIVE MATERIALS

H. Rep. No. 104-369 (1995).......................................... 2

OTHER AUTHORITIES

Alan S. Ritchie, The Proposed “Securities

Private Enforcement Reform Act”:

The Introduction of Proportionate

Liability Into Rule 10b-5 Litigation,

42 Clev. St. L. Rev. 339 (1994) ............................. 20

viii

TABLE OF AUTHORITIES

(Continued)

Page(s)

Barbara L. Trencher & Niall O’Hegarty,

‘Apuzzo’ Invites Aiding and Abetting

Securities Fraud Enforcement

Actions, N.Y.L.J. (Sept. 19, 2012) ........................ 21

Larry A. Cerutti, SEC Rule 10b-16:

Should the Federal Courts Allow

Sophisticated Investors to Recover?,

18 Pac. L.J. 171 (1986) ........................................... 9

Matthew Joonho Jeon, Broker-Dealer

Responsibility in Regulation D

Transactions, 17 Fordham Urban

L.J. 63 (1988) ...................................................... 5, 6

Noah A. Gold, Corporate Criminal

Liability: Cooperate, and You Won’t

Be Indicted, 8 Geo. J. L. & Pub. Pol’y

147 (2010) ....................................................... 13, 15

Ralph K. Winter, Paying Lawyers,

Empowering Prosecutors, and

Protecting Managers: Raising the

Cost of Capital in America, 42 Duke

L.J. 945 (1993) ...................................................... 21

1

INTERESTS OF AMICUS CURIAE 1

The Chamber of Commerce of the United States of

America (the Chamber) is the world’s largest business

federation. It represents 300,000 direct members and

indirectly represents the interests of more than three

million companies and professional organizations of

every size, in every industry sector, and from every region of the country. An important function of the

Chamber is to represent the interests of its members

in matters before Congress, the Executive Branch, and

the courts. To that end, the Chamber regularly files

amicus curiae briefs in cases, like this one, that raise

issues of concern to the nation’s business community.

The Chamber’s membership has a powerful interest

in the reversal of the erroneous Second Circuit decision below. Under the Second Circuit’s novel and misguided holding, alleged misstatements of compliance

with Public Company Accounting Oversight Board

(“PCAOB”) auditing standards are material for securities-law purposes, even if the substance of the audit

would not be changed if the standards were followed to

the letter. Plaintiffs in other cases will likely argue

that this holding should be extended far outside the

context in which it was announced—including in securities-law cases involving statements of compliance

with other kinds of professional standards and practices, such as underwriting practices and valuation

procedures. The decision below thus threatens onerous liability under the securities laws for numerous experts who make insubstantial alleged misstatements

Pursuant to Rule 37, counsel for amicus curiae affirm that all

parties were timely notified of the filing of this brief. No counsel

for a party authored this brief in whole or in part and no entity or

person, other than amicus, its members, or its counsel, made any

monetary contribution intended to fund the preparation or submission of this brief.

1

2

in materials directed toward investors. That liability

would, in turn, harm American businesses and the

American economy.

INTRODUCTION AND

SUMMARY OF ARGUMENT

This Court has repeatedly recognized the potential

for private securities litigation “to injure ‘the entire

U.S. economy.’” Merrill Lynch, Pierce, Fenner & Smith

Inc. v. Dabit, 547 U.S. 71, 81 (2006) (quoting H. Rep.

No. 104-369, at 31 (1995) (Conf. Rep.)). On that basis,

the Court has rebuffed various efforts to expand liability under the securities laws. See, e.g., Central Bank

of Denver, N.A. v. First Interstate Bank of Denver, N.A.,

511 U.S. 164, 189 (1994) (discussing Rule 10b-5 litigation). And the Court has specifically recognized that

an “unnecessarily low” “standard of materiality” could

well subject a “corporation and its management” to “liability for insignificant omissions or misstatements.”

TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 448

(1976); see Basic Inc. v. Levinson, 485 U.S. 224, 231232 (1988) (materiality requirement satisfied where

“disclosure of the omitted fact would have been viewed

by the reasonable investor as having significantly altered the ‘total mix’ of information made available” (citation omitted)).

Here, the Second Circuit’s decision sets aside that

careful approach—and does so in a harmful way. The

Second Circuit held that an auditor’s alleged misstatement of compliance with PCAOB auditing standards

was material under Section 10(b) and Rule 10b-5, even

though nothing substantive about the audit changed

once the standards were followed. App.34a-35a; see

App.153a. In so holding, the Second Circuit split from

one other court of appeals and created serious tension

with several others. Pet.12-19. It also violated the

long-standing, settled requirement that a plaintiff

3

demonstrate a link between the alleged misstatement

and the alleged harm. See Pet.26-29.

Making matters worse, plaintiffs in other cases will

likely argue that the Second Circuit’s holding should

extend outside of the legal and factual context at issue

here to cases that arise under different statutes or involve statements regarding different kinds of accepted

professional standards or practices. This case involves

Section 10(b) and Rule 10b-5, but other securities statutes likewise make actionable material misstatements

and omissions regarding compliance with such standards or practices and have historically required the

same showing of materiality as Section 10(b) and Rule

10b-5. Plaintiffs therefore may argue that the Second

Circuit’s materiality holding should be applied under

those other statutes as well, where it could do even

more damage than in cases brought under Section

10(b) and Rule 10b-5. Further, although this case involves auditor statements regarding PCAOB standards, materials directed to investors often contain

statements by other kinds of experts, such as appraisers and lawyers, that they have followed accepted

standards or practices in their fields, and plaintiffs often bring claims alleging that those statements of compliance are untrue. Plaintiffs in such cases will likely

argue that those statements should be treated as material just as the statements at issue in this case

were—no matter how insubstantial any alleged lack of

compliance with the relevant standards or practices

actually was.

Given the Second Circuit’s prominence in the field of

securities law, other courts may adopt its erroneous

materiality holding. This Court’s review is urgently

needed to prevent that misguided approach to materiality from affecting securities-law cases in the Second

Circuit and around the country.

4

ARGUMENT

I.

The Second Circuit’s Decision Could

Sweep Far Beyond the Specific Legal And

Factual Context In Which It Arose

A.

The Second Circuit’s Materiality

Holding Could Be Applied To Other

Securities Statutes That Have A

Materiality Element

The Second Circuit held below that a statement of

compliance with PCAOB standards was material under Section 10(b) and Rule 10b-5, even though the substance of the audit would not have changed had the

standards been followed. That alone makes the decision below highly consequential, as those provisions

have a “broad scope.” United States v. Willis, 737 F.

Supp. 269, 273 (S.D.N.Y. 1990); see Chiarella v.

United States, 445 U.S. 222, 226 (1980) (Section 10(b),

which is implemented by Rule 10b-5, “was designed as

a catch-all clause to prevent fraudulent practices”); 15

U.S.C. 78j(b) (prohibiting “any manipulative or deceptive device” “in connection with the purchase or sale of

any security”); 17 C.F.R. 240.10b-5 (forbidding making

“any untrue statement of a material fact” or omitting

“to state a material fact * * * in connection with the

purchase or sale of any security”).

But that is not all. Plaintiffs in other cases will

likely argue that the Second Circuit’s holding should

extend to still more claims, including claims brought

under Sections 11(a) and 12(a)(2) of the Securities Act

and Section 18 of the Exchange Act asserting that

there has been a false statement of compliance with

5

professional standards or practices. 2 Where one of

those statutes applies, plaintiffs may bring a claim under it in addition to, or instead of, a claim under Section 10(b) and Rule 10b-5.

Sections 11(a) and 12(a)(2) of the Securities Act and

Section 18 of the Exchange Act cover somewhat different ground than Section 10(b) and have somewhat different elements—but the materiality requirement under all of those statutes has been understood to be the

same. Plaintiffs thus could argue that the Second Circuit’s incorrect materiality holding extends to claims

brought under those other provisions. If that argument were to succeed, the Second Circuit’s materiality

approach would have a particularly powerful and distorting effect on claims involving professional standards or practices that are brought under the other provisions, because such claims do not require certain elements that are required by Section 10(b) and Rule

10b-5 and that can pose independent barriers to asserting violations of the securities laws. See Matthew

That list is not exclusive, as plaintiffs may argue that the Second

Circuit’s holding should extend to other statutes as well. Various

statutes protecting shareholder interests likewise have a materiality requirement that overlaps with the materiality requirement

in Section 10(b) and Rule 10b-5. See In re NAHC, Inc. Securities

Litig., 306 F.3d 1314, 1331 (3d Cir. 2002) (“This definition of materiality is the same for both § 10(b) and § 14(a) claims.”); Greenfield v. Flying Diamond Oil Corp., 1980 WL 1376, *7 (S.D.N.Y.

Feb. 26, 1980) (“The considerations of * * * materiality * * *

apply with equal force to section 10(b) and section 14(e).”). Plaintiffs can assert claims under those shareholder-protective laws to

challenge a false statement of compliance with a standard or

practice in documents provided to shareholders, such as following

certain analyses for fairness opinions. See generally Varjabedian

v. Emulex, 888 F.3d 399, 402 (9th Cir. 2018) (describing statement with summary of “the processes” that were “followed” when

“rendering [a fairness] opinion”).

2

6

Joonho Jeon, Broker-Dealer Responsibility in Regulation D Transactions, 17 Fordham Urban L.J. 63, 66

(1988) (“an aggrieved purchaser who cannot prove” an

element under Section 10(b) and Rule 10b-5 “may seek

relief under [S]ection 11” and Section 12(a)(2)). In that

scenario, application of the Second Circuit’s materiality holding could well be the deciding factor as to

whether claims under Sections 11(a), 12(a)(2), and 18

are able to move forward.

A closer examination of those provisions demonstrates the effect that the holding below could have

outside of the Section 10(b) and Rule 10b-5 context:

Sections 11(a) and 12(a)(2) of the Securities

Act. Sections 11(a) and 12(a)(2) are “Securities Act

siblings with roughly parallel elements.” In re Morgan

Stanley Info. Fund Securities Litig., 592 F.3d 347, 359

(2d Cir. 2010); see 15 U.S.C. 77k(a); 15 U.S.C.

77l(a)(2). Section 11(a) provides a cause of action for

purchasers of securities to sue over material misstatements and omissions in “registration statement[s].” 15

U.S.C. 77k(a). Section 12(a)(2) permits suits over securities purchases made “pursuant to a materially

false or misleading ‘prospectus or oral communication.’” In re Adams Golf, Inc. Securities Litig., 381 F.3d

267, 273 (3d Cir. 2004).

Plaintiffs are likely to argue that the Second Circuit’s approach to materiality under Section 10(b) and

Rule 10b-5 in the decision below should also govern in

cases arising under Sections 11(a) and 12(a)(2) that involve a statement of compliance with an accepted professional standard or practice. Courts have treated

the materiality requirement under Sections 11(a) and

12(a)(2) the same way that they have treated the materiality requirement under Section 10(b) and Rule

10b-5. See, e.g., In re Donald J. Trump Casino Securities Litig.–Taj Mahal Litig., 7 F.3d 357, 369 (3d Cir.

7

1993) (observing that the same materiality standard

applies across Section 10(b), Rule 10b-5, Section 11(a),

and Section 12(a)(2)); Rombach v. Chang, 355 F.3d

164, 178 n.11 (2d Cir. 2004) (same). And the types of

documents containing misstatements that plaintiffs

may sue over under Sections 11(a) and 12(a)(2) include

statements regarding compliance with accepted professional standards or practices. See, e.g., In re SunEdison, Inc. Securities Litig., 300 F. Supp. 3d 444, 498

(S.D.N.Y. 2018) (Section 11 claim focused on statement of compliance with auditing standards); In re

AOL Time Warner, Inc. Securities and “ERISA” Litig.,

381 F. Supp. 2d 192, 216 (S.D.N.Y. 2004) (same under

Section 12).

But there is one important difference between claims

under Section 10(b) and Rule 10b-5 and claims under

Sections 11(a) and 12(a)(2): the latter claims “do not

require a showing of scienter, reliance, or loss causation, and require Plaintiffs to show only that Defendants issued or signed a registration statement containing an untrue statement of a material fact” or an omission of a material fact. Tongue v. Sanofi, 816 F.3d 199,

209 (2d Cir. 2016) (internal quotation marks omitted).

In other words, Section 11(a) and 12(a)(2) claims lack

many of the elements of Section 10(b) and Rule 10b-5

claims—which means that whether the statement at

issue is material is a central question under Sections

11(a) and 12(a)(2). As one court of appeals put it, as to

such claims “[t]he crucial questions are: ‘[W]as there

a misrepresentation? And, if so, was it objectively material?’” In re Constar Int’l Inc. Securities Litig., 585

F.3d 774, 784 (3d Cir. 2009).

Accordingly, if the Second Circuit’s materiality holding were applied to Sections 11(a) and 12(a)(2), that

would make an enormous difference to the disposition

of claims brought under those statutes. If such a claim

8

is based on a misstatement about compliance with

some professional standard or practice, a plaintiff

would, as a practical matter, have to adequately allege

or establish only a single element: a factual misrepresentation or omission. A plaintiff would have virtually

no burden regarding materiality, because it would not

matter how minor the deviation from the relevant

standard or practice actually was or what effect the deviation had in the real world. The Second Circuit’s approach to materiality thus could often be the decisive

factor in whether a Section 11(a) or 12(a)(2) claim goes

forward—because elements like scienter that might

pose an independent obstacle for plaintiffs simply are

not a required part of claims under those provisions.

Section 18 of the Exchange Act. Section 18 of the

Exchange Act permits suits for damages from the purchase or sale of a security in reliance on false or misleading statements of material fact contained in certain “document[s] or report[s] filed with the SEC pursuant to the Exchange Act.” In re Suprema Specialties, Inc. Securities Litig., 438 F.3d 256, 283 (3d Cir.

2006); see 15 U.S.C. 78r.

Once again, plaintiffs in other cases could argue that

the materiality holding in the decision below should

apply to claims brought under Section 18 involving alleged noncompliance with professional standards and

practices. As is true of Sections 11(a) and 12(a)(2), Section 18 has a materiality standard that has been

treated identically to the materiality standard under

Section 10(b) and Rule 10b-5. See In re Sanofi Securities Litig., 87 F. Supp. 3d 510, 526-528 (S.D.N.Y. 2015)

(treating materiality under Section 18 the same as under Section 10(b)). And the documents and reports

covered by Section 18 include statements regarding

compliance with accepted standards or practices. See

Deephaven Private Placement Trading, Ltd. v. Grant

9

Thornton & Co., 454 F.3d 1168, 1175 (10th Cir. 2006)

(Section 18 case involving document “stat[ing] that

[auditor] conducted its audits in accordance with

GAAS”).

The elements of a Section 18 claim are not quite as

distinct from the elements of a claim under Section

10(b) and Rule 10b-5 as are the elements of a claim

under Sections 11(a) or 12(a)(2)—but there is one important way in which a Section 18 claim is far easier

to plead and prove than a claim under Section 10(b)

and Rule 10b-5. Plaintiffs proceeding under Section

18 “bear[] no burden of proving that the defendant

acted with scienter or any particular state of mind.” In

re Suprema, 438 F.3d at 283. By contrast, plaintiffs

proceeding under Section 10(b) and Rule 10b-5 must

plead with particularity facts giving rise to a strong

inference of the requisite state of mind—and, of

course, must ultimately prove scienter. See Tellabs,

Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 321

(2007) (setting forth what plaintiffs must plead regarding scienter). Notably, that scienter requirement

is “a significant obstacle to obtaining a recovery” under

Section 10(b) and Rule 10b-5. Larry A. Cerutti, SEC

Rule 10b-16: Should the Federal Courts Allow Sophisticated Investors to Recover?, 18 Pac. L.J. 171, 189

(1986).

Again, then, if the Second Circuit’s materiality holding were extended to Section 18 claims, that would

make an outsized difference in how those claims are

litigated and would make them much more plaintifffriendly than they had previously been. The scienter

requirement may independently bar a claim under

Section 10(b) and Rule 10b-5 in a case in which the

Second Circuit’s materiality holding applies, but the

same cannot happen with a Section 18 claim.

10

B.

The Second Circuit’s Materiality

Holding Could Be Applied To Many

Different Kinds of Statements In

Investor-Facing

Materials

Of

Compliance

With

Accepted

Professional Standards Or Practices

The Second Circuit addressed a particular kind of alleged misstatement—namely, BDO’s statement of

compliance with PCAOB standards. App.34a. But

there are many other kinds of statements of compliance with accepted professional standards or practices

that appear in investor-facing documents and that investors may target in a lawsuit under Section 10(b)

and Rule 10b-5 or under the various other securities

laws discussed above. Pet.23. Numerous statements

by experts such as appraisers, actuaries, lawyers, engineers, and others at least impliedly—and often expressly—represent that the expert has adhered to

some applicable standard or otherwise used a sound

method. See, e.g., Kitchens v. U.S. Shelter, 1988 WL

108598, at *30 (D.S.C. June 30, 1988) (stating in a securities case that “the mere fact that an expert makes

a report constitutes a representation that it is based

upon sound methods” and that “failure to observe the

methods and standards which the expert expressly or

impliedly purports to adopt will result in a misrepresentation of fact”).

Plaintiffs in other cases could argue that the Second

Circuit’s materiality holding extends to those other

kinds of statements. Accordingly, if this Court leaves

the decision below in place, the Second Circuit’s decision could reverberate far beyond the factual scenario

presented here—not only in cases that arise in that

Circuit but also in cases that arise in other courts that

choose to follow in the Second Circuit’s footsteps.

11

Some examples of statements that could be affected

by the Second Circuit’s holding are the following:

Accounting standards. As BDO’s petition explains, plaintiffs often bring claims under the securities laws challenging statements of compliance with

Generally Accepted Accounting Principles (GAAP).

See Pet.12-19 (citing Adams v. Standard Knitting

Mills, Inc., 623 F.2d 422 (6th Cir. 1980); In re Stone &

Webster, Inc., 414 F.3d 187 (1st Cir. 2005); In re Daou

Systems, Inc., 411 F.3d 1006 (9th Cir. 2005)).

Plaintiffs in such cases could argue that the Second

Circuit’s holding should apply to those kinds of claims

just as it applies to the claims relating to PCAOB

standards that are at issue here. If that argument

were to succeed, then statements of compliance with

GAAP would be treated as material in resolving securities-law claims.

Valuation procedures. Another statement that

may be the subject of a securities claim is a statement

of compliance with appropriate or accepted valuation

procedures. Numerous securities-law suits have been

premised on allegedly false statements involving such

procedures. See, e.g., Pension Committee of Univ. of

Montreal Pension Plan v. Banc of America Securities,

LLC, 446 F. Supp. 2d 163, 173 (S.D.N.Y. 2006) (allegations involving “false statements about the[] procedures for ensuring accurate valuations of the Funds,”

which purportedly were not followed); In re Lehman

Bros. Securities and ERISA Litig., 799 F. Supp. 2d 258,

311 (S.D.N.Y. 2011) (allegation that statement “that

Lehman adopted SFAS 157 for determining ‘fair

value’” was “materially false and misleading”); FDIC

v. RBS Acceptance Inc., 611 F. Supp. 3d 1089, 1094 (D.

Colo. 2020) (allegations regarding prospectus supplement stating that “[e]very mortgage loan [was] se-

12

cured by a property that ha[d] been appraised by a licensed appraiser in accordance with the Uniform

Standards of Professional Appraisal Practice [(“USPAP”)] of the Appraisal Foundation”).

Plaintiffs could try to extend the Second Circuit’s

materiality holding to encompass such suits—thus

making those suits easier for plaintiffs to assert and to

win, even if the valuation-procedure mistake is an exceedingly minor one that causes no one any harm. The

fact pattern in Kitchens provides a useful example of

how an extension of the Second Circuit’s decision could

meaningfully alter the course of such suits. That case

involved a prospectus statement “represent[ing] that

the $5.50” per share valuation “had been determined

properly by using a valuation process that was appropriate for the industry.” 1988 WL 108598, at *30; see

ibid. (explaining the prospectus contained a “representation that the valuation was done in accordance with

generally accepted valuation procedures”); ibid. (discussing “representation that this valuation was done

in a proper way appropriate for the industry”). The

court found that the valuation was not conducted under a “method that was appropriate to the industry”

and that the value of the shares was actually “substantially less than $5.50 per share.” Id. at *32 (emphasis

added).

On that basis, the district court concluded that the

prospectus’s representation about following appropriate and generally accepted valuation procedures was

material under Section 11 of the Securities Act. 1988

WL 108598, at *33. Notably, the court found materiality only after ascertaining that failure to follow the

appropriate valuation method meant that the value of

the shares stated in the prospectus was inflated. In

the court’s view, the fact that the actual value of the

shares was lower than stated “would have been viewed

13

by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”

Basic, 485 U.S. at 231-232 (citation omitted); see

Freedman v. Value Health, Inc., 2000 WL 630916, at

*5 (D. Conn. Mar. 24, 2000) (permitting securities-law

claim alleging failure to disclose facts that “would materially impact the price of [the company’s] shares” (citation omitted)).

If the Second Circuit’s misguided decision were to be

extended to this context, however, the alleged misstatement in Kitchens—that a particular valuation

procedure was followed when in fact it was not—would

be deemed material even if a court found that the failure to follow valuation procedures did not affect the

value of the shares in any way. It would be enough for

materiality that disclosure of the omitted fact (i.e., failing to comply with an appropriate valuation procedure) “would have alerted investors to potential problems” with the valuation at issue and that the misstatement of compliance would have “subjected unknowing investors to the risk that” the company’s valuation was “unreliable.” App.36a.

Loss-reserves estimates. Insurance companies

“promise to pay clients’ claims resulting from insured

events, such as sickness or accidents.” Noah A. Gold,

Corporate Criminal Liability: Cooperate, and You

Won’t Be Indicted, 8 Geo. J. L. & Pub. Pol’y 147, 149

(2010). “To account for the risks they take on and the

inevitable payments they will have to make to clients,

insurance companies set aside a certain fraction of all

premiums as ‘loss reserves.’” Ibid.

Securities lawsuits have targeted statements about

the actuarial methodologies that insurance companies

use to estimate loss reserves. Some such suits have

been dismissed on the ground that there is not a suffi-

14

cient allegation or sufficient showing that the statements in question were false. See Malin v. XL Capital

Ltd., 499 F. Supp. 2d 117, 137, 145-146 (D. Conn. 2007)

(plaintiffs alleged that a company stated that it had a

certain methodology for estimating loss reserves but

that the company’s “own actuarial and accounting policies were not” in fact “followed,” and the court dismissed the claim on the ground that there was “no evidence” that those policies were not complied with);

Woolgar v. Kingstone Companies, Inc., 477 F. Supp. 3d

193, 215, 231-232 (S.D.N.Y. 2020) (plaintiffs alleged

that an insurance company’s SEC filings “falsely

stated * * * that the Company’s loss reserve process

used standard actuarial reserving methodologies, considering all information known to [the Company] as of

the date recorded,” but the court concluded that the allegations were not sufficient to show falsity (internal

quotation marks omitted)).

But not every case involving claims of false statements about loss-reserve methodologies will be so easily disposed of—which means that materiality questions may come to the fore and make the difference between an early dismissal and a burdensome summaryjudgment and trial process. Where plaintiffs do sufficiently allege that a company’s statement about its

compliance with a particular actuarial methodology to

estimate loss reserves was false because that methodology was not in fact followed, plaintiffs also may argue that the court should apply the approach taken by

the Second Circuit in this case to conclude that the

statement is material—even if nothing about the lossreserve estimates would have changed if the company

had adhered perfectly to the relevant methodology.

And if that argument were accepted, all that would

matter is that, if the allegedly false statement was re-

15

placed with a statement that the actuarial methodology was not followed, investors would have been

“alerted * * * to potential problems in the company’s”

loss-reserve estimates, App.36a—which are “a ‘key indicator’ in evaluating a company’s financial condition,”

Gold, 8 Geo. J. L. & Pub. Pol’y at 150.

Underwriting practices. Plaintiffs also frequently

bring securities-law claims alleging misstatements

about following certain underwriting practices. See,

e.g., In re New Century, 588 F. Supp. 2d 1206, 1226

(C.D. Cal. 2008) (describing allegations that defendants made “statements that [the company] observed

standards of high-quality credit and underwriting”

and that the company’s actual “practices * * * utterly

failed to meet those standards”); Atlas v. Accredited

Home Lenders Holding Co., 556 F. Supp. 2d 1142, 1154

(S.D. Cal. 2008) (allegations that defendants made

statements about the company’s underwriting practices that were “false and misleading,” because

“[d]efendants had caused [the company] to deviate

from the company’s publicly professed standards”);

Waterford Township Police & Fire Retirement Sys. v.

Regional Management Corp., 2016 WL 1261135, at *2

(S.D.N.Y. Mar. 30, 2016) (allegations that statement

in SEC filings about “sound underwriting standards”

were untrue); Lloyd v. CVB Fin. Corp., 2012 WL

12883522, at *20 (C.D. Cal. Jan. 12, 2012) (“Plaintiffs

also allege that defendants made numerous false

statements regarding their loan underwriting practices.”).

Plaintiffs asserting such claims could argue that the

Second Circuit’s materiality holding should extend beyond the PCAOB-standard misstatements alleged in

this case to statements about underwriting practices.

Again, if that argument were to succeed, that could

16

change the result in an appreciable number of underwriting-practice cases. The fact pattern in SEC v.

Mozilo, 2009 WL 3807124 (C.D. Cal. Nov. 3, 2009), illustrates why that is so. In that case, the SEC alleged

that the defendants “made misleading statements of

material fact regarding the quality of” a mortgage

lender’s “underwriting systems”—in particular, that

the defendants made statements about the lender’s

use of “proprietary underwriting systems” when defendants were aware that the lender “was originating

* * * increasing percentages of poor quality, subprime

loans that did not comply with [the lender’s] already

lax underwriting guidelines.” Id. at *4, 10; see id. at

*11 (discussing allegations of “the virtual abandonment of prudent underwriting guidelines and the resulting proliferation of poor quality loans, during the

same period [the lender] was touting the superior

quality of its underwriting guidelines and its loan portfolio”).

The district court in Mozilo ruled that the SEC adequately alleged that the statements were not only

“false and misleading” but also material, because the

lender’s “core business * * * admittedly depended

upon the quality of its loan production” and investors

therefore would consider the “poor quality of [the

lender’s] underwriting practices and loan portfolio”

important. 2009 WL 3807124, at *11. In other words,

it was not enough for materiality that the defendants

simply made statements about using certain underwriting practices that were allegedly false. Rather, the

alleged statements were material because they affected the lender’s loan portfolio, upon which its business depended—meaning that investors would care

very much about the statements as part of the total

mix of information available. Ibid.

17

But if the Second Circuit’s misguided holding were

extended to this context, it simply would not matter

for materiality purposes whether those statements

about underwriting practices misleadingly papered

over a major weakness in the lender’s business or instead related only to minor mistakes or missteps in underwriting practices that had no effect on the lender’s

business. The alleged statements would be material,

with nothing more required from the plaintiffs than a

mere “risk” of “unreliab[ility].” App.36a.

Legal compliance. Statements regarding legal

compliance are frequent targets of securities lawsuits.

Such statements represent that a company believes

that it is complying with certain applicable laws. See,

e.g., In re Lottery.com, Inc. Securities Litig., 715 F.

Supp. 3d 506, 551 (S.D.N.Y. 2024) (statement in annual report by company “that—although it could not

‘ensure that [its] activities * * * w[ould] not become

the subject of regulatory or law enforcement proceedings’” the company “believe[d] that [it was] in compliance with all material domestic and international laws

and regulatory requirements” (citation omitted)); City

of Westland Police and Fire Retirement Sys. v. MetLife,

Inc., 129 F. Supp. 3d 48, 81 (S.D.N.Y. 2015) (statement

in three SEC filings that “[w]e believe that any allegations that information about [our retained asset accounts] is not adequately disclosed or that the accounts

are fraudulent or otherwise violate state or federal

laws are without merit” (citation and emphasis omitted)).

Such statements may be deemed false in circumstances in which the company has not undertaken any

meaningful legal analysis with the assistance of counsel. In Omnicare, Inc. v. Laborers District Council

Construction Industry Pension Fund, 575 U.S. 175

18

(2015), this Court considered a portion of a “registration statement” expressing a company’s “view of its

compliance with legal requirements.” Id. at 179; see

id. at 179-180 (company stated that it believed its contract arrangements with certain parties “are in compliance with applicable federal and state laws,” and

that its contracts with pharmaceutical managers “are

legally and economically valid arrangements”). The

Court explained that statements of legal compliance

impliedly represent that the company has “consulted a

lawyer” and that the lawyer has undertaken “some

meaningful legal inquiry.” Id. at 188; see Weiss v.

SEC, 468 F.3d 849, 855 (D.C. Cir. 2006) (reasoning

that a legal opinion “includes an implied representation that the speaker rendered the opinion * * * with

a reasonable basis,” i.e., that the speaker conducted “a

reasonably sufficient examination of material legal

and factual sources and [had] reasonable certainty as

to the subjects addressed therein”). In this Court’s

view, statements of legal compliance “could be misleadingly incomplete” if the company did not in fact

consult a lawyer or relied on “mere intuition” instead

of a “meaningful legal inquiry.” Omnicare, 575 U.S. at

188.

If the Second Circuit’s materiality holding remains

on the books, plaintiffs may well argue that it extends

to statements of legal compliance. And if the holding

were applied in the legal-compliance context, then the

burden of proof for plaintiffs alleging that a company

violated the securities laws when it represented legal

compliance despite undertaking no meaningful legal

inquiry would be significantly lightened. Such a representation would be treated as material, regardless of

whether a more thorough legal inquiry would have

made any difference to the substance of the statement

19

of legal compliance and regardless of whether the company was in fact complying with the relevant law.

II.

The Second Circuit’s Materiality Holding

Will Increase The Cost Of Business And

Harm The Economy

This Court has repeatedly recognized that if “[p]rivate securities fraud actions” are “not adequately contained,” they “can be employed abusively to impose

substantial costs on companies and individuals.” Tellabs, 551 U.S. at 313. And it has specifically recognized

the need to strike an appropriate balance in defining

the materiality requirement imposed by various securities laws. As the Court has explained, “if the standard of materiality is unnecessarily low, * * * the corporation and its management [may] be subjected to liability for insignificant omissions or misstatements.”

TSC, 426 U.S. at 448; see Matrixx Initiatives, Inc. v.

Siracusano, 563 U.S. 27, 38 (2011) (Court has been

“careful not to set too low a standard of materiality”

(citation omitted)).

“Precisely these dangers are presented” by the Second Circuit’s holding that a statement of compliance

with PCAOB standards is material, even if there is no

effect on the substance of the audit opinion. TSC, 426

U.S. at 449. As BDO’s petition explains, the Second

Circuit’s decision expands potential liability for auditors who certify compliance with PCAOB standards

but make technical or minor mistakes that do not affect the outcome of the audit. Pet.20. And for all of

the reasons explained above, that significant expansion of potential liability could affect not just outside

auditors like BDO but also appraisers, actuaries, lawyers, and other experts who assert in investor-facing

materials their compliance with an accepted professional standard or practice. See pp. 10-19, supra.

20

The resulting burden could be immense. The threat

of damages liability under Section 10(b) and Rule 10b5 as well as under other securities laws can be crushing. See, e.g., Alan S. Ritchie, The Proposed “Securities

Private Enforcement Reform Act”: The Introduction of

Proportionate Liability Into Rule 10b-5 Litigation, 42

Clev. St. L. Rev. 339, 351 (1994) (explaining the potential for liability “for huge amounts of damages in class

actions by shareholders” in “Rule 10b-5 litigation”); In

re Clearly Canadian Securities Litig., 1999 WL

707737, at *5 (N.D. Cal. Sept. 3, 1999) (criticizing “irrational damage awards”). What is more, defendants

in securities cases are forced “to expend large sums

even for pretrial defense.” Central Bank, 511 U.S. at

189 (discussing Rule 10b-5 litigation).

With the Second Circuit’s materiality holding

smoothing the way for plaintiffs to survive a motion to

dismiss and even a motion for summary judgment,

there will be tremendous pressure on “defendants

* * * to favor settlement over trial,” Ritchie, 42 Clev.

St. L. Rev. at 351—including in cases involving claims

of insubstantial misstatements that did not harm investors. As this Court has explained, “[t]he extensive

discovery and the potential for uncertainty and disruption” in a securities suit can “allow plaintiffs with

weak claims to extort settlements from innocent companies.” Stoneridge Inv. Partners, LLC v. ScientificAtlanta, 552 U.S. 148, 163 (2008) (declining to expand

reach of Section 10(b) and Rule 10b-5 private right of

action). Even if a defendant has “substantial defenses,” it may prudently choose to “abandon” them

and settle “in order to avoid the expense and risk of

going to trial.” Central Bank, 511 U.S. at 189.

The end result would be to “frustrate or delay normal

business activity of the defendant which is totally unrelated to the lawsuit.” Blue Chip Stamps v. Manor

21

Drug Stores, 421 U.S. 723, 740 (1975). The “increased

costs incurred by professionals” like auditors “because

of the litigation and settlement costs under” securities

laws “may be passed on to their client companies.”

Central Bank, 511 U.S. at 189. In turn, those costs

would be “incurred by the company’s investors,” who

are supposed to be the “intended beneficiaries” of securities laws. Ibid. (emphasis added). Accordingly, the

Second Circuit’s holding would increase the costs of doing business, with no corresponding benefit—only a

windfall to plaintiffs who are effectively relieved of the

burden of pleading and proving an essential element

of their claim. See Ralph K. Winter, Paying Lawyers,

Empowering Prosecutors, and Protecting Managers:

Raising the Cost of Capital in America, 42 Duke L.J.

945, 948 (1993).

Those effects would be particularly pronounced because of the Second Circuit’s outsized importance in

the field of securities law. Venue will often lie in the

Second Circuit in securities cases, and a “high volume

of securities fraud cases” are brought there. Barbara

L. Trencher & Niall O’Hegarty, ‘Apuzzo’ Invites Aiding

and Abetting Securities Fraud Enforcement Actions, at

2, N.Y.L.J. (Sept. 19, 2012); see Pet.24-25. Courts outside the Second Circuit “routinely look” to the resulting body of caselaw “for guidance.” Trencher & O’Hegarty, supra. And that is so even when the Second Circuit issues a dubious decision. See, e.g., Morrison v.

National Australia Bank Ltd., 561 U.S. 247, 260 (2010)

(describing D.C. Circuit deferring to the Second Circuit due to its “preeminence in the field of securities

law”); see id. at 276 (Stevens, J., concurring) (describing Second Circuit as “[t]he Mother Court of securities

law”). This Court’s review is therefore urgently warranted.

22

CONCLUSION

For the foregoing reasons and those stated by BDO,

the Court should grant the petition.

Respectfully submitted,

JANET GALERIA

MARIA C. MONAGHAN

U.S. CHAMBER LITIGATION

CENTER

1615 H Street, NW

Washington, DC 20002

(202) 463-5337

ELAINE J. GOLDENBERG

Counsel of Record

ANDRA LIM

MUNGER, TOLLES & OLSON LLP

601 Massachusetts Ave. NW

Suite 500E

Washington, DC 20001

(202) 220-1100

elaine.goldenberg@mto.com

Counsel for Amicus Curiae

JUNE 9, 2025