Securities Exchange Act

In Auditor Suit, Second Circuit Says Quantity Does Not Always Mean Quality

The U.S. Court of Appeals for the Second Circuit has revived a federal securities class action against Grant Thornton LLP regarding its unqualified 1999 audit opinion indicating that Winstar Communications Inc.’s 1999 financial statements was in conformity with generally accepted accounting principles. The Second Circuit’s opinion is notable because it finds that, despite an apparently thorough audit (in terms of hours spent and documents reviewed) a fact finder could still find enough evidence of a conscious disregard of signs of fraud to support an inference of recklessness. In other words, even where an auditor does a significant amount of work on an audit, such work will not necessarily immunize the auditor from securities claims. READ MORE

Madoff Fund Investors’ Exchange Act Claims Bite the Morrison Dust

Courts have been making slow but steady progress in testing the limits of the 2010 Supreme Court case Morrison v. Nat’l Australian Bank Ltd., 130 S.Ct. 2869 (2010). In Morrison, the Court held the federal securities laws apply only to purchases or sales made “in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.” Id. at 2888. The Second Circuit has held that the “purchase and sale” of a security occurs when “irrevocable liability” occurs and the parties are bound to the transaction. Absolute Activist Value Master Fund v. Ficeto, 677 F.3d 60 (2d Cir. 2012) READ MORE