The Third Circuit has upheld the dismissal of a securities fraud class action for failure to plead fraud with the particularity required by the Private Securities Litigation Reform Act. Plaintiffs brought claims under Rule 10b-5 of the Exchange Act, alleging that the corporation and a number of individual defendants made material misstatements or omissions during the defined class period. The Court held, among other things, that the group pleading doctrine could not be relied upon to connect individual defendants to alleged fraudulent statements in group-published documents, such as annual reports and press releases.
Prior to the enactment of the PSLRA, a plaintiff could allege that statements contained in group-published documents were attributable to all of the officers and directors who had day-to-day involvement in regular company operations. Agreeing with the only other Circuits that have ruled on this issue, the Court held that “the group pleading doctrine is no longer viable in private securities fraud actions after the enactment of the PSLRA.” Although the PSLRA does not address the group pleading doctrine, the Court held that the group pleading doctrine was inconsistent with the PSLRA’s “requirement that scienter be pleaded with respect to ‘each act or omission’ by ‘the defendant’.” (Winer Family Trust v. Queen, 2007 WL 2753734 (September 24, 2007 3rd Cir.))