In a class action lawsuit brought against a company and certain individual officers of the company, the District Court granted a motion to dismiss claims against the individual officers for failure to demonstrate that the officers acted with the requisite scienter to support the plaintiffs’ claims under Section 10(b) of the Securities Exchange Act of 1934. The plaintiffs alleged that the individual defendants made numerous false and misleading statements regarding, among other things, the value of the company’s assets. The plaintiffs asserted that the individual defendants acted with scienter in making the alleged misstatements concerning the company’s assets because they had access to information contradicting their public statements. In particular, the plaintiffs argued that the individual defendants were reckless in not realizing that the assets of the company were overvalued because they received regular reports on the company’s inventory

The Court rejected the plaintiffs’ argument, ruling that the plaintiffs could not establish recklessness merely by asserting that the individual defendants should have known that the company’s assets needed to be written down based on the inventory reports. The Court noted that to allege recklessness adequately, the plaintiffs were obligated to point to specific statements in the reports that would have alerted the individual defendants to the need for a write-down. They failed to do so and, as a result, the court dismissed the claims against the individual defendants. (Caiafa v. Sea Containers, Ltd., 2007 WL 2815633 (September 25, 2007 S.D.N.Y.))