Dismissing plaintiff corporation’s securities fraud action, a district court held, among other things, that plaintiff failed to plead scienter with the particularity required by the Private Securities Litigation Reform Act (PSLRA). Plaintiff alleged that defendants, who included many of the corporation’s former officers and executives, caused the corporation to issue stock to themselves and to their friends without consideration.
In support of its claim, plaintiff alleged that the corporation did not have any record of payment or compensation in exchange for certain of the stock that was issued. The Court held that this allegation was insufficient to establish that defendants acted with the intention to defraud the corporation. After noting that under the heightened pleading standards of the PSLRA the Court must consider opposing non-culpable inferences, the Court ruled that plausible non-culpable inferences, including the possibility that plaintiff failed to keep adequate book-keeping records, outweighed the inference that defendants had defrauded plaintiff.
The Court supported its ruling by noting, among other things, the plaintiff’s acknowledgment that four of the defendants named in the complaint had provided documentation supporting the company’s issuance of shares to them in response to the complaint. (Intrepid Global Imaging 3D, Inc. v. Athayde, 2007 WL 4403353 (M.D.Fla. Dec. 13, 2007))