Denying, in part, a motion to dismiss claims against individual directors of a loan company, a district court held that the claims against the directors were not grounded in fraud and, therefore, not subject to the heightened pleading requirement of Rule 9(b) of the Federal Rules of Civil Procedure. Plaintiffs alleged that the individual defendants were liableunder Sections 11 and 12 of the Securities Act of 1993 based upon their having signed materially false and misleading registration statements. Defendants argued that the claims against them needed to satisfy the particularity requirements of Rule 9(b) because they were based on fraud, as evidenced by the numerous allegations in the complaint of intentional misconduct by their company.

Because the allegations of intentional misconduct were not directed at the individual defendants, but only against the company, the Court found that the allegations against the directors were not grounded in fraud and, accordingly, did not require the specificity mandated by Rule 9(b). The Court sustained the claims after ruling that they adequately alleged that the defendants were negligent in signing the registration statements and in failing to investigate and correct the allegedly material misstatements. (In re American Business Financial Services, Inc. Securities Litigation, 2007 WL 81937 (E.D. Pa. Jan. 9, 2007))