Broker-Dealer Litigation - Greenberg Traurig LLP

improperly recognized revenue on sales of medical devices and falsely reported other expenses
and incomes. Plaintiff further alleged that such improper accounting practices led defendants to
materially misstate revenue and income in financial disclosures as well as misrepresent the
quality of the company’s internal controls and compliance with GAAP. The court granted the
defendants’ motion to dismiss finding that magnitude of financial statement restatements and the
small size of the business alone were not sufficient to establish scienter as required under the
heightened pleading requirements of the PSLRA. Further, none of the confidential witnesses
provided information sufficient to show that defendants, at the time the incorrect financial
reports were made, had actual access to information showing the content therein was incorrect.
Finally, the mere departures of executives shortly after an audit as well as defendants signing
Sarbanes-Oxley certificates that financial statements were true did not adequately support a
finding of scienter.
Centaur Classic Convertible Arbitrage Fund Ltd. v. Countrywide Financial corporation, 793
F.Supp.2d 1138 (C.D.Cal. 2011).
Investors brought suit against defendant issuer of convertible senior debentures and
against defendant’s former senior executives, officers and directors for violations of federal
securities laws and defendants moved to dismiss for failure to state a claim as required under the
heightened pleading standards of the PSLRA. The court denied defendant’s motion finding that
(i) a factual issue existed as to whether investors suffered economic loses and (ii) investors had
adequately plead alleged loss causation, reasonable reliance on defendants’ misrepresentations
and strong individualized inference of scienter against each defendant.
In re STEC Inc. Securities Litigation, 2011 WL 4442822 (C.D. Cal. Jan. 10, 2011).
Investors brought class action suit against defendants alleging violations of federal
securities laws and defendants moved to dismiss for failure to state a claim as required under the
heightened pleading requirements of the PSLRA. Plaintiffs claimed defendants omitted a
material contract in certain filings, materially misrepresented purchases made to certain
manufacturers, inflated reported revenues and revenue projections and misrepresented the
competition faced by one of its products. The court granted defendants motion to dismiss finding
that plaintiff failed to particularize the part of the omitted contract that was misleading, failed to
show how and when purchasers learned of certain contracts to show how it impacted stock,
failed to allege the amount of inflation that defendants’ misleadingly projected and failed to
show defendants acted with deliberate recklessness in failing to adequately judge the competition
to a product. The court also found that delays in the product’s initial launch were the more likely
reason for increased competition, rather than intentional misrepresentations related to the
company’s predictions.
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