Judge O’Neil (E.D. Pa.) has dismissed the American Business Financial Services action in its entirety. In his decision, he finds Plaintiffs’ allegations concerning ABFS’ loan delinquency rates failed to meet the PSLRA’s requirements for falsehood, materiality, and scienter. Although the Plaintiffs were successful in providing the proper background information of the five confidential witnesses, they weren’t particular enough with the information they provided. Also, the court indicated that it would not dismiss claims pertaining to false statements made after the named Plaintiffs’ final stock purchase, as long as false statements or omissions were made prior to the last purchase, and they were part of a common scheme to defraud. But there was no such occasion, as the court, after rejecting general application of the group pleading doctrine (but allowing individual liability for group published documents), proceeded to find the scheme alleged by Plaintiffs was not particularized, and even if it was, it was simply not material to investors. Twenty days were given to amend.
Finally, something we can all agree on: “Obviously, there can be no securities fraud liability for a true statement.”
Nugget: “While insider sales are one way to prove scienter, they are not required.”