## Facts

- General Physics Corporation provided training and technical services, including substantial work tied to Department of Energy (DOE) contracts, and its stock traded on the NYSE.
- A February 20, 1992 Goldman Sachs analyst report recommended the stock and stated that “General Physics has indicated” DOE contract awards had “increased significantly in recent weeks,” while also noting prior DOE procurement delays.
- On March 30, 1992, General Physics distributed its 1991 Annual Report and filed a Form 10‑K; these materials expressed optimism about growth in DOE-related services, including that work for DOE contractors would be an “increasing segment” of the business.
- Also on March 30, General Physics issued a press release stating first-quarter 1992 earnings would be below expectations due to administrative delays in DOE contract awards, described the problem as “temporary,” and predicted earnings would align with analysts’ estimates for the remainder of 1992.
- On June 18, 1992, the company announced second-quarter earnings would also be lower than expected due to continuing DOE contract award delays; the next day the stock price fell about 36%.
- Shareholders who purchased stock between February 20 and June 18, 1992 filed a putative class action alleging violations of Exchange Act § 10(b) and Rule 10b‑5 based on alleged misstatements and omissions that inflated the stock price.
- The district court dismissed the complaint under Rule 9(b) for insufficient particularity; plaintiffs appealed.

## Issues

1. Whether the company’s optimistic projections and characterizations of the DOE slowdown were materially false or misleading statements or omissions actionable under § 10(b) and Rule 10b‑5.
2. Whether the issuer had a duty to correct or police alleged inaccuracies in an independent analyst report that the issuer did not publish or clearly adopt.
3. Whether the complaint pleaded securities fraud with the particularity required by Federal Rule of Civil Procedure 9(b), including allegations showing falsity when made and scienter.

## Decision

- The Fourth Circuit affirmed the dismissal of the complaint.
- The challenged statements were largely forward-looking “soft” information—vague optimism and prognostications—insufficiently concrete to be actionable absent specific guarantees or well-pleaded facts showing falsity when made.
- The issuer had no general duty under § 10(b) and Rule 10b‑5 to correct or police statements in an independent analyst’s report that it did not publish or adopt, even if the report attributed information to the company.
- Plaintiffs failed to satisfy Rule 9(b) because they did not plead specific facts showing why the statements were false when made or supporting a sufficient inference of scienter, relying instead on later adverse results (“fraud by hindsight”).

## Legal Principles

- Forward-looking statements, projections, and generalized corporate optimism are typically immaterial and not actionable under § 10(b) and Rule 10b‑5 unless they are concrete guarantees or are rendered misleading by specific omitted facts.
- Securities law requires truthful and non-misleading disclosure when an issuer speaks, but it does not impose a broad duty to disclose every adverse trend merely because the issuer made positive statements.
- An issuer generally has no obligation to correct or monitor third-party analyst statements absent adoption, endorsement, or other circumstances creating responsibility for the statement.
- Rule 9(b) requires securities-fraud allegations to identify the who, what, when, where, and why of the alleged fraud, including particularized facts showing falsity at the time of the statement and facts supporting scienter; later disappointing performance alone is insufficient.

## Conclusion

The Fourth Circuit held that the shareholders’ claims improperly treated generalized optimism and predictions about DOE-related business as securities fraud and that, without particularized allegations showing falsity and scienter at the time of the statements (and without a duty to correct an independent analyst report), the complaint failed Rule 9(b) and was properly dismissed.


Raab v. Gen. Physics Corp., 4 F.3d 286 (4th Cir. 1993)