Fed. Sec. L. Rep. P 95,389 Irving A. Backman v. Polaroid Corporation, Irving A. Backman v. Polaroid Corporation
910 F.2d 10 | Court of Appeals for the First Circuit | 1990
What This Case Means for Subcontractors
Polaroid shareholders sued claiming the company committed securities fraud by not disclosing that its new Polavision camera was unprofitable and oversold. The court ruled in Polaroid's favor, finding that companies have no legal duty to disclose negative information unless they've made misleading statements. The key lesson: silence about problems is not fraud unless you've already made false claims that need correction.
Key Takeaways
- •Don't make partial disclosures about a project or product—if you say anything, you must disclose all material facts. Staying silent is safer than selective disclosure.
- •Document what management knew and when they knew it. Courts look at whether decision-makers actually had knowledge of problems, not just whether problems existed.
- •When bidding or reporting on contracts, avoid statements that could be seen as misleading. Once you start talking, you trigger a duty to be complete and accurate.
Silence, absent a duty to disclose, is not misleading under Rule 10b-5.
Frequently Asked Question
If I don't tell my client about cost overruns or delays, am I committing fraud?
Not automatically. Like Polaroid, silence alone isn't fraud. However, if you've already made statements about the project's status or costs, you must correct them if they become false. The safest approach: disclose problems early and document everything.
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