Sounds of Fraud Go Unheard

Judge William P. Dimitrouleas (S.D. FL.) has largely denied the Company's and it top officers’ motions to dismiss in the Medical Staffing Network Holdings securities class action. He upheld the 1933 Securities Act claims in their entirety, rejecting Defendants materiality, particularity, and bespeaks caution arguments. He also blasted Defendants’ attempts to say those claims “sound in fraud,” holding that “Plaintiffs carefully craft their Section 11 count in a manner to avoid that.”

As for the 1934 Exchange Act claims, Plaintiffs didn’t fare quite as well for statements made before a certain date, but the Court did find that the “failure to disclose material information concerning MSN's financial situation by misrepresenting and falsifying the company's earnings releases and periodic reports in an attempt to mislead potential investors” “alleges more than mere corporate mismanagement.” Judge Dimitrouleas also found that “manipulating financial forecasts and failing to disclose the closure of [certain branch] offices amounts to an extreme departure from the standards of ordinary care and presents a danger of misleading investors that is so obvious that the Defendants should have been aware of it.”

You can read Marrari v. Medical Staffing Network Holdings, issued September 27, 2005, at 2005 U.S. Dist. LEXIS 22700.

Nugget: “Anonymous sources may be used to sustain complaints under the PSLRA so long as the sources are described with sufficient particularity to support the probability that a person in the position occupied by the source would possess the information alleged,” so “this Court adopts this standard.”