(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.)

CEO Prevails on Summary Judgment Against SEC

A district court (SD Cal) granted a former CEO's motion for summary judgment in a securities fraud action brought by the SEC alleging that the CEO made misleading statements in a letter and press release regarding earnings and made false statements to the company's outside auditors. In dismissing the claims, the court noted that although the letter and press release contained misstatements, the CEO lacked the requisite scienter for liability under Section 10(b).

In order to show scienter, the SEC was required to establish that the CEO acted with actual intent or recklessness. The court held that although the CEO had knowledge of the company's accounting and business practices, a reasonable fact finder could not draw an inference that the CEO acted with scienter when making material misstatements because the CEO lacked knowledge of the impropriety of the practices. Thus, because the SEC could not provide additional evidence that the CEO acted with knowledge, the Section 10(b) claim was dismissed.

The court further held that the CEO was not liable under Exchange Act Rule 13b2-2 for allegedly making false statements to the company's outside auditors. Because the CEO signed the letter in good faith, relied on other officers' assurances that the letter was truthful, and lacked accounting knowledge that would apprise him the letter was false, the court found that he did not know or have reason to know that the statements or omissions made to the auditor were false. Control person claims were also dismissed.

SEC v. Todd (DC Minn) is reported at ¶93,926.