Rogue Missives - Safe Harbor?, by Louis Corrigan

Rogue Missives

ROGUE ARCHIVES

Thursday, January 16, 1997

Safe Harbor?
by Louis Corrigan (RgeSeymour)
According to Intel CEO Andrew Grove, only the paranoid survive. Because Grove seems to thrive on paranoia, investors are now stuck with it as their chief method of coping with potential fraud. That, at least, is one way of looking at the rise and subsequent fall of California Proposition 211, which was handily defeated last November.
Advocates of the initiative claimed that it would protect retirement savings by stiffening the penalties against company officials (and their accomplices) who defraud investors. Prop 211 proponents pitched it as a corrective measure to the Private Securities Litigation Reform Act of 1995. That act made life more difficult for plaintiffs by requiring that they point to specific facts that suggested company officials intended to commit fraud.
Prop 211 supporters also argued that the new federal law's safe harbor provision for forward-looking statements opened up a potential Pandora's box of earnings projections from dishonest or perhaps simply deluded management. Initiative supporters claimed that companies were now free from the threat of litigation, even if they made fundamentally unrealistic earnings predictions. Some Prop 211 supporters called the safe harbor provision a safe ocean, or simply a license to lie. Since the initiative would have made California a more hospitable state for securities litigation, and California has no safe harbor provision, there's little doubt that, in practice, Prop 211 would have undermined the federal provision.
On the other side, opponents said Prop 211 was nothing more than a gravy train for already prosperous attorneys who make their living by filing so-called frivolous lawsuits whenever a stock drops precipitously. They said the safe harbor had been a long time coming and that Prop 211 would do more than end it. Since executives could now be held personally liable for misleading forward-looking statements, the initiative would have a chilling affect on all forms of voluntary corporate disclosure. As a result, financial analysts and their consensus earnings estimates would be left in a state of confusion. Grove's vocal opposition to the proposal (and Intel's sizable $500,000 contribution to the Against Prop 211 campaign) helped galvanize California's high-tech companies to make a lot of noise and spend a lot of money to defeat the resolution.
It's hard to argue with those who insist that Prop 211 was designed to be a cash cow for plaintiffs' attorneys. In threatening to make company officials and directors personally liable for fraud, the initiative appealed to investors' most basic revenge fantasies. Perhaps if the initiative had gone all out and proposed public hangings of penny stock manipulators, then it might have been unbeatable. But the mechanics and underlying rationale of the personal liability clause were too obvious.
First, the plaintiffs' attorneys file suit. Next, they kick back with margaritas, waiting for the company's officers and directors to panic at the thought of maybe losing their fancy digs. Then when the company comes back with a quick settlement offer, the plaintiffs' attorneys sell out their clients for pennies on the dollar, take their 30% fees, and move on to their next victim. At least, that's the cynical take.
Of course, once Californians shot down the proposal, the combative campaign rhetoric on both sides of the issue was deflated by a bit of new data from the National Economic Research Associates (NERA), a research and consulting group based in White Plains, New York. In mid-November, the group came out with a report that showed that for the first ten months of 1996, attorneys filed 79 securities class-action lawsuits in state court, a notable increase over the 48 state filings made during the same period of 1995. Obviously, plaintiffs were increasingly interested in testing the state courts, presumably driven by the assumption that the Securities Act of 1995 had made the federal courts a less hospitable forum.
Surprisingly, however, plaintiffs' attorneys filed about the same number of suits in federal court in 1996 as they did in 1995. For the first ten months of 1996, there were 104 filings in federal court, down from 127 in 1995. But NERA argued that there was an unusual decline in the number of suits filed in the first three months of 1996 because of a rush to get filings completed in late 1995, before the new law took effect. Indeed, the period from April 1st to October 31st of 1996 saw 81 securities class-action suits filed in federal court, exactly the same number seen during the same period of 1995.
In other words, aside from some new interest in state courts, the numbers, at least, argued against both sides in the Prop 211 battle. The Securities Act of 1995 may have made attorneys more circumspect in preparing cases, but it hadn't actually thinned out the rush to the courts. On the other hand, the new law was designed to cut down on the number of frivolous suits. But again, the numbers suggested that there either weren't any frivolous lawsuits in the first place. Or conversely, there were actually enough cases of genuine fraud to keep those same attorneys equally busy even without the frivolous cases.
Critics of Prop 211 were always too quick to dismiss the fact that thousands of investors are affected by securities fraud each year. The popular support the proposal mustered (even in the face of a massive PR campaign to fight it) came partially from the almost visceral sense that there must be a better way, something more than can be done to protect investors. And one of the more important unanswered questions of the Prop 211 campaign is whether the safe harbor provision of the Securities Act does sufficiently protect investors, or whether it actually assists promoters in pushing a stock.
Forward-looking statements include such items as management discussions about future plans or goals for a company's products or services, or official company projections of revenues, income, earnings per share, capital expenditures, or capital structure. The safe harbor provision of the Securities Act of 1995 generally protects a company and its officers from legal liability when making such statements as long as they are "identified as forward-looking" and "accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement." Oral statements are similarly protected as long as reference is made to documents filed with the Securities and Exchange Commission where the risk factors are spelled out.
The National Investor Relations Institute (NIRI), the leading professional organization of corporate officers and investor relations consultants, was the driving force in making the safe harbor passage a fundamental component of the 1995 Act. In a special NIRI Executive Alert issued last summer, the group offered some help in interpreting and following the law.
For example, NIRI suggested that companies should try to be explicit in their cautionary language within the context of a given forward-looking remark. That is, a management should do more than just make reference to public SEC filings, which are not readily accessible to investors who aren't online or don't know about the Commission's EDGAR database. NIRI also advised that "boiler-plate warnings that are not specifically related to the forward-looking statement will not suffice as meaningful cautionary language."
On the other hand, the NIRI briefing indicates that "as long as a forward-looking statement is accompanied by sufficient cautionary language -- even if the projection misses the mark -- it would not violate the anti-fraud provisions of the federal securities laws."
There's no doubt that forward-looking information is among the most valuable to any investor. Consider, for example, the Fool Ratio or PEG, which compares a stock's price-to-earnings-to-growth. The Fool Ratio depends on estimates of future earnings growth made by research analysts. Those analysts' estimates are likely to be much more accurate if company officials are willing to furnish some guidance about their expectations for the business in the next year or so. The more accurate the analysts' numbers, the more useful the Fool Ratio.
But for management inclined to do so, the safe harbor passage can indeed read like an invitation to exaggerate future expectations. The recipe is simple: add 3 parts caveats to one part very bullish forecast, and investors may just ignore the warnings. The company, meanwhile, remains docked in that safe harbor, protected from litigation. But that's a recipe that can turn an investor's stomach. The entire debate over Props 211's threat to such voluntary, forward-looking disclosure was dominated by the likes of Intel's Grove. Unfortunately, many companies don't share Intel's scruples.
What, after all, would Grove say about LASERSIGHT INCORPORATED <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LASE)") else Response.Write("(Nasdaq: LASE)") end if %>? LaserSight manufactures and sells the laser equipment used in photorefractive keractectomy (PRK), the type of eye surgery that has put the likes of VISX Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VISX)") else Response.Write("(Nasdaq: VISX)") end if %> and SUMMIT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BEAM)") else Response.Write("(Nasdaq: BEAM)") end if %> in the news. The St. Louis-based company also manages vision care for insurers and other third parties; owns and operates a small network of ophthalmologists; and operates vision care centers.
LaserSight was supposed to enjoy a banner year in 1996. On January 25th of last year, the company issued a press release that said it expected earnings per share of $0.75 to $0.90 for calendar year 1996 and $1.10 to $1.25 per share for 1997. The company estimated that revenues would grow to between $60 million and $70 million in 1996 and between $120 million and $130 million in 1997. To put this in perspective, the company released its full 1995 results just a month later. In 1995, the company earned $4.59 million or $0.64 a share on revenues of nearly $26 million, including some extraordinary one-time gains from litigation.
These earnings projections were accompanied by a typical warning. "The projected operating results and other matters discussed in this news release are forward-looking statements and are accompanied by the cautionary statements contained herein or disclosed in the Company's SEC filings."
The January press release also mentioned a number of specific risk factors. For example, challenges facing the company's LaserSight Technologies subsidiary included "the ability to finance increased sales, collect accounts receivable in a timely manner, maintain quality component suppliers, obtain required regulatory approvals in certain European markets, and manage the political and legal risks associated with international sales."
Unfortunately, investors who placed any value in the company's public projections have been cruelly jolted. In mid-November, LASE reported earnings for the first nine months of the year. Rather, the company reported a loss of $3.31 million, or $0.51 per share, on merely $15.07 million in revenue. Indeed, the company's most consistent feature this year has been its ability to turn in a quarterly loss. In the first quarter, LASE lost $1.23 million, or $0.19 a share. In the second quarter, the company lost $25,000 or $0.02 a share. In the third quarter, the real bleeding returned, with a loss of $2.05 million, or $0.28 a share.
Companies in developing and thus volatile markets have understandable difficulty in making accurate earnings forecasts. Not even the most seasoned management can really predict the specific challenges they will face in the year ahead. Still, LaserSight may very well have lost about as much money in 1996 as the company said it would make. And those losses started piling up right away. One could argue whether these estimates were even made in good faith. But if the results can differ so materially from management's own projections, why even bother to offer forward estimates? Better to issue a three sentence press release: "This company is a crap shoot. Play at your own risk. We have no idea what earnings will be."
Yet when the depressing nine month results were released in November, LaserSight president and CEO Michael R. Farris offered these astonishing thoughts. "Our two divisions, consisting of Technologies and Health CareServices, have demonstrable strengths. However, it is the opinion of management that the financial community does not fully recognize the long-term value of the combination of our technology and managed care strategies. For that reason, the Company has engaged A.G. Edwards to explore and pursue opportunities to maximize shareholder value."
Certainly Farris can use all the help he can get in maximizing shareholder value, and shareholders are no doubt ready. One might suggest, though, that good old-fashioned earnings performance might do the trick. If that doesn't work, at least don't build up what were clearly wildly unrealistic expectations and hope investors will just forget.
Of course, the safe harbor provision of the Securities Act of 1995 is set up so investors just might forget. Oddly enough, the Act does not require companies to update their forward-looking statements. Even NIRI, which essentially helped write the Act, has noted that "publicly held companies would be well advised, as a matter of good business and credible investor relations, to consider updating forward-looking statements to reflect material changes to the extent possible." Indeed, investors should doubt the credibility of any management that hesitates to update previous projections.
On the other hand, the safe harbor provision makes room for what can only be called abuses. In mid-December, OPTICAL CABLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OCCF)") else Response.Write("(Nasdaq: OCCF)") end if %> CEO Robert Kopstein issued annual sales and earnings projections through the rest of the decade. By 1999, Optical's sales should have tripled from 1996 levels, more than tripling earnings in the process. The press release implied that these may be conservative estimates since they only include Optical's existing market segments.
Kopstein won Rogue's award for Most Promotional CEO, and he earned it. While his estimates may turn out to be true (who knows?), no company should be in the business of offering specific projections going out three years. That's a little too close to fortune-telling. The only cautionary statement that could rightfully be appended to such numbers is: Don't believe them.
As Gerri Detweiler, director of the National Council of Individual Investors, told Rogue during the battle over Prop 211. "There is a concern that [the safe harbor] will lead to companies essentially being able to make exaggerated forecasts, or perhaps premature forecasts, as long as they have some kind of a disclaimer."
The examples of LaserSight and Optical Cable show why Detweiler and others are concerned. No one expects Grove to project annual earnings of $12 a share for Intel and then end up reporting a loss. But the LaserSight cases suggests that the safe harbor provision might actually protect Intel if such a scenario unfolded. Imagine the paranoia instilled in investors from that kind of earnings surprise.
The answer, of course, is not to do away with the safe harbor for forward-looking statements. They can clearly provide exactly the kind of information that helps investors make good decisions. At the same time, litigation after-the-fact is an equally unsatisfying solution. Regardless of whose estimates you look at, securities litigation seldom provides full or even substantial restitution for an investor's losses.
But while the legal experts ponder the ramifications of the safe harbor and perhaps consider modifications, investors are left simply to cultivate paranoia when it comes to considering the forward-looking statements made under its protection. Though a studied paranoia is hardly the best solution, when it's all you've got, best to practice.

Main
Page

Fool
Wire

Hall of
Portfolios

Fool's
School

Daily
News

Fool
Mart

Foolish
Games

Copyright©1997, The Motley Fool, All Rights Reserved.
This material is for personal use only. Republication and redissemination, including posting to
news groups, is expressly prohibited without the prior written consent of The Motley Fool, Inc.
Legal Disclaimer, in fine print of course! Questions or Comments?
Please contact
Ted Verrill at
[email protected]

ROGUE ARCHIVES

Thursday, January 16, 1997
Safe Harbor? by Louis Corrigan (RgeSeymour) According to Intel CEO Andrew Grove, only the paranoid survive. Because Grove seems to thrive on paranoia, investors are now stuck with it as their chief method of coping with potential fraud. That, at least, is one way of looking at the rise and subsequent fall of California Proposition 211, which was handily defeated last November. Advocates of the initiative claimed that it would protect retirement savings by stiffening the penalties against company officials (and their accomplices) who defraud investors. Prop 211 proponents pitched it as a corrective measure to the Private Securities Litigation Reform Act of 1995. That act made life more difficult for plaintiffs by requiring that they point to specific facts that suggested company officials intended to commit fraud. Prop 211 supporters also argued that the new federal law's safe harbor provision for forward-looking statements opened up a potential Pandora's box of earnings projections from dishonest or perhaps simply deluded management. Initiative supporters claimed that companies were now free from the threat of litigation, even if they made fundamentally unrealistic earnings predictions. Some Prop 211 supporters called the safe harbor provision a safe ocean, or simply a license to lie. Since the initiative would have made California a more hospitable state for securities litigation, and California has no safe harbor provision, there's little doubt that, in practice, Prop 211 would have undermined the federal provision. On the other side, opponents said Prop 211 was nothing more than a gravy train for already prosperous attorneys who make their living by filing so-called frivolous lawsuits whenever a stock drops precipitously. They said the safe harbor had been a long time coming and that Prop 211 would do more than end it. Since executives could now be held personally liable for misleading forward-looking statements, the initiative would have a chilling affect on all forms of voluntary corporate disclosure. As a result, financial analysts and their consensus earnings estimates would be left in a state of confusion. Grove's vocal opposition to the proposal (and Intel's sizable $500,000 contribution to the Against Prop 211 campaign) helped galvanize California's high-tech companies to make a lot of noise and spend a lot of money to defeat the resolution. It's hard to argue with those who insist that Prop 211 was designed to be a cash cow for plaintiffs' attorneys. In threatening to make company officials and directors personally liable for fraud, the initiative appealed to investors' most basic revenge fantasies. Perhaps if the initiative had gone all out and proposed public hangings of penny stock manipulators, then it might have been unbeatable. But the mechanics and underlying rationale of the personal liability clause were too obvious. First, the plaintiffs' attorneys file suit. Next, they kick back with margaritas, waiting for the company's officers and directors to panic at the thought of maybe losing their fancy digs. Then when the company comes back with a quick settlement offer, the plaintiffs' attorneys sell out their clients for pennies on the dollar, take their 30% fees, and move on to their next victim. At least, that's the cynical take. Of course, once Californians shot down the proposal, the combative campaign rhetoric on both sides of the issue was deflated by a bit of new data from the National Economic Research Associates (NERA), a research and consulting group based in White Plains, New York. In mid-November, the group came out with a report that showed that for the first ten months of 1996, attorneys filed 79 securities class-action lawsuits in state court, a notable increase over the 48 state filings made during the same period of 1995. Obviously, plaintiffs were increasingly interested in testing the state courts, presumably driven by the assumption that the Securities Act of 1995 had made the federal courts a less hospitable forum. Surprisingly, however, plaintiffs' attorneys filed about the same number of suits in federal court in 1996 as they did in 1995. For the first ten months of 1996, there were 104 filings in federal court, down from 127 in 1995. But NERA argued that there was an unusual decline in the number of suits filed in the first three months of 1996 because of a rush to get filings completed in late 1995, before the new law took effect. Indeed, the period from April 1st to October 31st of 1996 saw 81 securities class-action suits filed in federal court, exactly the same number seen during the same period of 1995. In other words, aside from some new interest in state courts, the numbers, at least, argued against both sides in the Prop 211 battle. The Securities Act of 1995 may have made attorneys more circumspect in preparing cases, but it hadn't actually thinned out the rush to the courts. On the other hand, the new law was designed to cut down on the number of frivolous suits. But again, the numbers suggested that there either weren't any frivolous lawsuits in the first place. Or conversely, there were actually enough cases of genuine fraud to keep those same attorneys equally busy even without the frivolous cases. Critics of Prop 211 were always too quick to dismiss the fact that thousands of investors are affected by securities fraud each year. The popular support the proposal mustered (even in the face of a massive PR campaign to fight it) came partially from the almost visceral sense that there must be a better way, something more than can be done to protect investors. And one of the more important unanswered questions of the Prop 211 campaign is whether the safe harbor provision of the Securities Act does sufficiently protect investors, or whether it actually assists promoters in pushing a stock. Forward-looking statements include such items as management discussions about future plans or goals for a company's products or services, or official company projections of revenues, income, earnings per share, capital expenditures, or capital structure. The safe harbor provision of the Securities Act of 1995 generally protects a company and its officers from legal liability when making such statements as long as they are "identified as forward-looking" and "accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement." Oral statements are similarly protected as long as reference is made to documents filed with the Securities and Exchange Commission where the risk factors are spelled out. The National Investor Relations Institute (NIRI), the leading professional organization of corporate officers and investor relations consultants, was the driving force in making the safe harbor passage a fundamental component of the 1995 Act. In a special NIRI Executive Alert issued last summer, the group offered some help in interpreting and following the law. For example, NIRI suggested that companies should try to be explicit in their cautionary language within the context of a given forward-looking remark. That is, a management should do more than just make reference to public SEC filings, which are not readily accessible to investors who aren't online or don't know about the Commission's EDGAR database. NIRI also advised that "boiler-plate warnings that are not specifically related to the forward-looking statement will not suffice as meaningful cautionary language." On the other hand, the NIRI briefing indicates that "as long as a forward-looking statement is accompanied by sufficient cautionary language -- even if the projection misses the mark -- it would not violate the anti-fraud provisions of the federal securities laws." There's no doubt that forward-looking information is among the most valuable to any investor. Consider, for example, the Fool Ratio or PEG, which compares a stock's price-to-earnings-to-growth. The Fool Ratio depends on estimates of future earnings growth made by research analysts. Those analysts' estimates are likely to be much more accurate if company officials are willing to furnish some guidance about their expectations for the business in the next year or so. The more accurate the analysts' numbers, the more useful the Fool Ratio. But for management inclined to do so, the safe harbor passage can indeed read like an invitation to exaggerate future expectations. The recipe is simple: add 3 parts caveats to one part very bullish forecast, and investors may just ignore the warnings. The company, meanwhile, remains docked in that safe harbor, protected from litigation. But that's a recipe that can turn an investor's stomach. The entire debate over Props 211's threat to such voluntary, forward-looking disclosure was dominated by the likes of Intel's Grove. Unfortunately, many companies don't share Intel's scruples. What, after all, would Grove say about LASERSIGHT INCORPORATED <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LASE)") else Response.Write("(Nasdaq: LASE)") end if %>? LaserSight manufactures and sells the laser equipment used in photorefractive keractectomy (PRK), the type of eye surgery that has put the likes of VISX Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VISX)") else Response.Write("(Nasdaq: VISX)") end if %> and SUMMIT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BEAM)") else Response.Write("(Nasdaq: BEAM)") end if %> in the news. The St. Louis-based company also manages vision care for insurers and other third parties; owns and operates a small network of ophthalmologists; and operates vision care centers. LaserSight was supposed to enjoy a banner year in 1996. On January 25th of last year, the company issued a press release that said it expected earnings per share of $0.75 to $0.90 for calendar year 1996 and $1.10 to $1.25 per share for 1997. The company estimated that revenues would grow to between $60 million and $70 million in 1996 and between $120 million and $130 million in 1997. To put this in perspective, the company released its full 1995 results just a month later. In 1995, the company earned $4.59 million or $0.64 a share on revenues of nearly $26 million, including some extraordinary one-time gains from litigation. These earnings projections were accompanied by a typical warning. "The projected operating results and other matters discussed in this news release are forward-looking statements and are accompanied by the cautionary statements contained herein or disclosed in the Company's SEC filings." The January press release also mentioned a number of specific risk factors. For example, challenges facing the company's LaserSight Technologies subsidiary included "the ability to finance increased sales, collect accounts receivable in a timely manner, maintain quality component suppliers, obtain required regulatory approvals in certain European markets, and manage the political and legal risks associated with international sales." Unfortunately, investors who placed any value in the company's public projections have been cruelly jolted. In mid-November, LASE reported earnings for the first nine months of the year. Rather, the company reported a loss of $3.31 million, or $0.51 per share, on merely $15.07 million in revenue. Indeed, the company's most consistent feature this year has been its ability to turn in a quarterly loss. In the first quarter, LASE lost $1.23 million, or $0.19 a share. In the second quarter, the company lost $25,000 or $0.02 a share. In the third quarter, the real bleeding returned, with a loss of $2.05 million, or $0.28 a share. Companies in developing and thus volatile markets have understandable difficulty in making accurate earnings forecasts. Not even the most seasoned management can really predict the specific challenges they will face in the year ahead. Still, LaserSight may very well have lost about as much money in 1996 as the company said it would make. And those losses started piling up right away. One could argue whether these estimates were even made in good faith. But if the results can differ so materially from management's own projections, why even bother to offer forward estimates? Better to issue a three sentence press release: "This company is a crap shoot. Play at your own risk. We have no idea what earnings will be." Yet when the depressing nine month results were released in November, LaserSight president and CEO Michael R. Farris offered these astonishing thoughts. "Our two divisions, consisting of Technologies and Health CareServices, have demonstrable strengths. However, it is the opinion of management that the financial community does not fully recognize the long-term value of the combination of our technology and managed care strategies. For that reason, the Company has engaged A.G. Edwards to explore and pursue opportunities to maximize shareholder value." Certainly Farris can use all the help he can get in maximizing shareholder value, and shareholders are no doubt ready. One might suggest, though, that good old-fashioned earnings performance might do the trick. If that doesn't work, at least don't build up what were clearly wildly unrealistic expectations and hope investors will just forget. Of course, the safe harbor provision of the Securities Act of 1995 is set up so investors just might forget. Oddly enough, the Act does not require companies to update their forward-looking statements. Even NIRI, which essentially helped write the Act, has noted that "publicly held companies would be well advised, as a matter of good business and credible investor relations, to consider updating forward-looking statements to reflect material changes to the extent possible." Indeed, investors should doubt the credibility of any management that hesitates to update previous projections. On the other hand, the safe harbor provision makes room for what can only be called abuses. In mid-December, OPTICAL CABLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OCCF)") else Response.Write("(Nasdaq: OCCF)") end if %> CEO Robert Kopstein issued annual sales and earnings projections through the rest of the decade. By 1999, Optical's sales should have tripled from 1996 levels, more than tripling earnings in the process. The press release implied that these may be conservative estimates since they only include Optical's existing market segments. Kopstein won Rogue's award for Most Promotional CEO, and he earned it. While his estimates may turn out to be true (who knows?), no company should be in the business of offering specific projections going out three years. That's a little too close to fortune-telling. The only cautionary statement that could rightfully be appended to such numbers is: Don't believe them. As Gerri Detweiler, director of the National Council of Individual Investors, told Rogue during the battle over Prop 211. "There is a concern that [the safe harbor] will lead to companies essentially being able to make exaggerated forecasts, or perhaps premature forecasts, as long as they have some kind of a disclaimer." The examples of LaserSight and Optical Cable show why Detweiler and others are concerned. No one expects Grove to project annual earnings of $12 a share for Intel and then end up reporting a loss. But the LaserSight cases suggests that the safe harbor provision might actually protect Intel if such a scenario unfolded. Imagine the paranoia instilled in investors from that kind of earnings surprise. The answer, of course, is not to do away with the safe harbor for forward-looking statements. They can clearly provide exactly the kind of information that helps investors make good decisions. At the same time, litigation after-the-fact is an equally unsatisfying solution. Regardless of whose estimates you look at, securities litigation seldom provides full or even substantial restitution for an investor's losses. But while the legal experts ponder the ramifications of the safe harbor and perhaps consider modifications, investors are left simply to cultivate paranoia when it comes to considering the forward-looking statements made under its protection. Though a studied paranoia is hardly the best solution, when it's all you've got, best to practice.