(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

2nd Circuit Affirms Dismissal of Action Against Audit Firm

The U.S. Circuit Court of Appeals for the 2nd Circuit affirmed the dismissal of a class action alleging that an issuer's accountant violated Exchange Act Section 10(b) and Rule 10b-5. Specifically, the class alleged that the accountant made numerous misstatements in various Form 10-K filings and quarterly reports that misrepresented the company's financial condition and failed to correct previous misstatements made by a former accountant.

The appellate panel held that because the misstatements contained in interim financial statements could not be attributed to the accountant, they could not form the basis of liability under Section 10(b). Additionally, the court held that the class failed to show loss causation. The putative class alleged that misstatements in two Form 10-Ks filed fifteen months apart from each other caused the drop in stock price. Specifically, the shareholders claimed that the accountant had concealed the risk of the company's bankruptcy. However, because the company had announced a 94 percent loss in total shareholder equity, along with other ongoing concerns, the shareholders had failed to prove that the concealment caused the financial loss.

Lattanzio v. Deloitte & Touche LLP (2ndCir) is reported at ¶94,150.