The United States Court of Appeals for the Fifth Circuit recently ruled in favor of a Beck Redden client, affirming the dismissal of a putative securities fraud class action against a company chairman. The suit arose from the failure of a bank that had invested substantially in residential mortgage-backed securities that lost value in the financial crisis of 2007-2008. When the bank went under, stockholders sued several of the bank’s officers and directors for securities fraud. The suit alleged that the bank and its executives lied about the bank’s financial health in public filings and announcements.
David J. Beck and Marcos Rosales represented the bank chairman before the United States District Court for the Northern District of Texas. There, the firm successfully obtained a complete dismissal of the suit. The plaintiffs appealed the ruling to the United States Court of Appeals for the Fifth Circuit, seeking complete reinstatement of the action.
Chad Flores joined the team to defend the judgment in the Fifth Circuit. The Fifth Circuit upheld the dismissal with a unanimous, published opinion authored by Judge Higginson. In particular, the decision ruled that the plaintiffs had failed to allege “scienter”—the state of mind required in a case of federal securities fraud. The appellate decision is a significant one that commentators call one of the spring’s “Top 5 Business Cases from the Fifth Circuit.”