Tenth Circuit Affirms High Standard For Scienter Pleading In Securities Fraud Cases Against Independent Auditors

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In Dronsejko v. Grant Thornton, Nos. 09-4222 and 10-4074, U.S. App. LEXIS 1052 (10th Cir. Jan. 20, 2011), the United States Court of Appeals for the Tenth Circuit affirmed a decision by the United States District Court for the District of Utah dismissing a securities fraud class action brought by investors in iMergent against its independent auditor, Grant Thornton. The district court held that the operative complaint failed to plead particularized facts sufficient to give rise to a strong inference that Grant Thornton possessed the scienter required to support liability under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. Plaintiffs also sought relief from the dismissal under Rule 60(b) of the Federal Rules of Civil Procedure, asserting that subsequent orders by the Public Company Accounting Oversight Board (“PCAOB”) issuing sanctions against two Grant Thornton auditors for their conduct in auditing iMergent’s financial statements added new evidence to their claims. The district court denied plaintiffs’ Rule 60(b) motion. The Tenth Circuit affirmed both decisions, reiterating the high standards for pleading a securities fraud claim against an independent auditor.

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