Plaintiffs, a class of investors who purchased LDK Solar Company (LDK) securities, alleged that the defendants, officers and directors of LDK Solar violated section 10(b) of the Securities Exchange Act of 1934 by making false and misleading statements about the company’s financial health in the company’s IPO prospectus and in a company-issued press release. The defendants moved to dismiss the plaintiffs’ claim, contending, among other things, that the plaintiffs failed to (i) identify a single allegedly false statement made by the defendants, and (ii) allege facts giving rise to the requisite strong inference of scienter.
Although defendants signed LDK’s IPO prospectus, which contained numerous allegedly false statements, they argued that these statements could only be attributed to them by applying the “group pleading doctrine,” which, they contended, was no longer good law following the United States Supreme Court’s Tellabs decision. The court disagreed. The court first ruled that it need not determine the viability of the group pleading doctrine, which allows unattributed corporate statements to be charged to individual defendants based solely on their corporate titles, to resolve defendants’ motion. Because plaintiffs alleged that the moving defendants had each signed the prospectus, the court held that the complaint sufficiently alleged, pursuant to the Private Securities Litigation Reform Act’s pleading standard,that defendants made the allegedly false statements.
Turning to defendants’ scienter argument, the court found that a strong inference of scienter as to each defendant had also been adequately alleged. With respect to the two defendants on LDK’s Board, the court found that they were personally aware of concerns raised by both the Board’s outside auditors and by the company controller who was hired to investigate the auditors’ concerns, and that they also knew that the controller resigned because his warnings of inaccuracies in LDK’s financial reports were ignored. As to the remaining defendant, the plaintiffs’ allegations that he was the controller’s supervisor, that he was aware of the accounting problems identified by the controller, and that he was aware of other facts calling into question the accuracy of LDK’s disclosures were sufficient to allege his scienter. (In re LDK Solar Securities Litigation, 2008 WL 4369987 (N.D. Cal. Sept. 24, 2008))