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Mining Company's Statements, GAAP Violations Not Scienter

A district court (SD NY) dismissed a consolidated class action complaint against a gold mining company alleging that the company violated Exchange Act Sections 10(b) and 20(a) by misrepresenting the success of certain restructuring of its operations and the performance of its operations. The class claimed that these misrepresentations enabled the company to obtain favorable financing in acquiring additional mines and artificially inflate the price of its stock.

The class claimed that the company acted recklessly or consciously misbehaved by engaging in "undisclosed illegalities" to conceal the mines' underperformance, and that its violations of Generally Accepted Accounting Principles required it to restate financial results. In dismissing the complaint, the court held that the class failed to show a strong inference of scienter. The court held that allegations of "undisclosed illegalities" did not meet the heightened pleading standard of the PSLRA. Although the company could have been more alert, the court found that the investors failed to show that its management was promoting a fraud.

The court also held that the investors failed to show that the company acted with scienter in violating GAAP. Because the mining company's operations took place in an area where the company experienced difficulties in acquiring personnel well-versed in U.S. accounting practices, the misstatements were not the result of a fraudulent scheme.

In re DRDGold Ltd. Securities Litigation (SD NY) is reported at ¶94,151.