Sometimes, I find it useful to take a step back and review the legal standard applicable to securities fraud claims under Section 10(b) and Rule 10b-5. To stay in court, and securities litigation all about surviving motions to dismiss, a plaintiff must allege all of the following:
Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008). The Private Securities Litigation Reform Act, (PSLRA) and Rule 9(b) of the Federal Rules of Civil Procedure impose more exacting pleading standards. The PSLRA requires that a complaint:
[s]pecify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief , the complaint shall state with particularity all facts on which the belief is formed.
15 U.S.C. § 78u-4(b)(1)(B). The PSLRA also requires that a complaint, with respect to each act or omission:
[S]tate with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind [i.e., scienter].
Id. at § 78u-4(b)(2)(A). "With particularity" means that a plaintiff must provide "in great detail, all the relevant facts forming the basis of her belief." In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 985 (9th Cir. 1999), superseded by statute on other grounds. Rule 9(b) further requires that in alleging fraud, a plaintiff must "state with particularity" the circumstances constituting fraud or mistake.
Does this mean that the other elements of a securities fraud action are not subject to Rule 9(b)'s requirement of particularity? Yesterday, the Ninth Circuit Court of Appeals joined the Fourth Circuit in concluding that Rule 9(b) applies to all elements of a securities fraud, including loss causation. Oregon Public Employees Retirement Fund v. Apollo Group Inc., Case No. 12-16624 (Dec. 16, 2014). The Ninth Circuit gave three reasons:
Because class action securities fraud suits rarely go to trial, the battle is almost always "lost and won" at the pleading stage. This makes the Ninth Circuit's opinion particularly important to both plaintiffs and defendants.