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Accountants Team Scores Victory in Defending Securities Fraud Claim Involving China-Based Company

August 9, 2013

Peter Larkin (Partner-White Plains) and Greg Bautista (Associate-White Plains) secured a dismissal of a securities fraud class action claim. The case was venued in the United States District Court, Southern District of New York.

The case, the second significant victory in the past few weeks for the Accountants practice, involved multiple securities fraud claims against a New York–based auditor of a China-based company traded in U.S. stock markets. The plaintiffs claimed that the auditor perpetrated a massive fraud by secretly entering into related-party transactions overwhelmingly in favor of the CEO, and falsely inflating revenue and income.

Under the Private Securities Litigation Reform Act, plaintiffs must plead facts that give rise to "a strong inference of scienter" or intent to deceive on the part of the defendants. The motion set forth how the allegations in the complaint did not satisfy this pleading threshold. The motion argued that in reality the allegations were, at most, those of negligence, which is insufficient for a securities fraud claim. The judge agreed.

This case is one of several involving securities fraud claims against U.S.-based auditors being handled by Wilson Elser’s Accountants practice across the country. A few weeks ago in another case, the team secured a dismissal decision finding that the Southern District of New York lacked personal jurisdiction over a Utah-based audit firm of a Nevada incorporated company with its operations in China. The complaint was brought by plaintiffs from Massachusetts, New York and Bermuda that had purchased corporate notes underwritten out of New York.

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