The U.S. Court of Appeals for the Second Circuit affirmed the district court’s dismissal of a securities fraud class action suit brought against defendant PXRE Group, Ltd. (a reinsurance company) and its officers and directors because plaintiffs failed to adequately plead scienter.

Plaintiffs’ claims for securities fraud, brought under Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, stemmed from the individual defendants’ representations regarding PXRE’s potential loss exposure from Hurricane Katrina. The district court granted defendants’ motion to dismiss because the complaint failed to raise a strong inference of scienter, which requires allegations that defendants had the motive and opportunity to commit fraud, or strong circumstantial evidence of conscious behavior or recklessness.

On appeal, plaintiffs asserted that the district court erred by, among other things, failing to find that the magnitude of PXRE’s understatement of losses did not support scienter, and by discounting defendants’ motive and opportunity in making their alleged misstatements. The Second Circuit rejected plaintiffs’ arguments and affirmed, holding that the plaintiffs’ allegations failed to give rise to a strong inference that defendants acted with the requisite state of mind to support a securities fraud claim. (Condra v. PXRE Group Ltd., No. 09-1370, 2009 WL 4893719 (2nd Cir. Dec. 21, 2009))