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Fifth Circuit Reverses Securities Suit Dismissal

The U.S. Court of Appeals for the Fifth Circuit reversed a lower court's dismissal of a securities fraud action based on allegedly misleading press reports of a technology company concerning new business deals. The court disagreed with the district court's assessment that the shareholder had failed to plead facts permitting the inference that the press statements misrepresented the financial soundness of the business deals.

Stating that "it is not unwarranted to infer that when a company's big deal collapses so fast, something was amiss at the outset," the court found that while some of the allegations concerned matters that transpired after the press releases, they were so temporally connected that they shed light on the financial condition of the companies at the time of the announcements.

The court further disagreed with the lower court's ruling that the shareholder had not met the Private Securities Litigation Reform Act's scienter pleading requirements. Since the struggling company just announced that it had reached agreements that would amount to a thirty-fold increase in its revenue, the court found it reasonable to assume that the company would have familiarized itself with the financial condition of the purchaser.

‚ Plotkin v. IP Axess, Inc. (5thCir) is reported at ¶93,227 .