In Wert v. Cohn, No. 17-C-219 (N.D. Ill. Sept. 1, 2017), shareholders of Ditto Holdings (“Ditto”) sued Ditto’s general counsel and members of Ditto’s board of directors. Plaintiffs alleged mismanagement and fraud, including fraud under Rule 10b-5 of the securities laws. Some of plaintiffs’ allegations concerned an investigative report prepared by Ditto’s outside counsel. Ditto had hired the law firm to investigate a former director’s allegations of corporate mismanagement. In its final report, outside counsel concluded that Ditto’s operations lacked discipline and transparency and made several recommendations to assist Ditto to improve its corporate practices. In the complaint, plaintiffs alleged that defendants made misrepresentations about the investigative findings and the extent to which Ditto had implemented outside counsel’s recommendations for improvement. With respect specifically to defendant Cohn, who plaintiffs alleged was Ditto’s general counsel (an allegation Cohn disputed but that the court accepted as true for purposes of the motion to dismiss), plaintiff James Myers claimed that he decided to invest in Ditto after Cohn and a board member led him to believe that outside counsel’s investigative report did not support the former director’s allegations of mismanagement. Cohn moved to dismiss Myers’s Rule 10b-5 claim against him, arguing that Myers did not allege fraud – especially Rule 10b-5’s scienter requirement – with particularity. The court concluded that Myers alleged facts giving rise to a strong inference of scienter: Cohn responded to Myers’s questions about the former director’s allegations by referring to outside counsel’s investigative report. And it was reasonable to infer that Cohn, as Ditto’s general counsel, was familiar with the contents of the report. The court also concluded that it was reasonable to infer that Cohn understood that any assurances to the effect that the investigative report did not contain support for the former director’s allegations and that the report’s recommendations had been implemented were false or at least misleading. Consequently, the court denied Cohn’s motion to dismiss Myers’s Rule 10b-5 securities fraud claim.