Southern District Dismisses Securities Fraud Suit for Insufficient Pleadings

A recent decision from the United States District Court for the Southern District of New York demonstrates the strict pleading requirements for securities fraud cases. The case involved issues of business law, securities fraud, civil procedure, and breach of fiduciary duty.

The case, In Re Barney, 05 Civ. 7583, NYLJ 1202571403267 (S.D.N.Y. 2012), concerned a group of mutual fund investors who sued two separate investment companies. The plaintiffs alleged that the investment companies had used deceptive practices to convince the mutual funds to use the investment companies’ in-house transfer agents in place of an outside company, First Data. The plaintiffs further claimed that the in-house transfer agents simply contracted out with First Data at a lower rate and pocketed the savings, thereby defrauding the mutual funds and their investors. In dismissing the majority of the claims, Judge Pauley noted that the plaintiffs had not sufficiently pled reliance. In other words, the plaintiffs did not sufficiently allege that they bought or sold securities in reliance on the investment companies’ specific deceptive acts.

At Tesser, Ryan & Rochman, LLP, our attorneys have years of experience in business litigation. We advise litigants about issues concerning fraud and breach of fiduciary duty, and can help identify various pleading requirements which are essential to such matters.