Petrie v. Electronic Game Card, Inc., No. 12-55620 (9th Cir. 2014)
Annotate this CasePlaintiffs, a group of investors, filed suit alleging that Electronic Game Card's former CEO and CFO violated section 10(b) of the Securities Exchange Act, 15 U.S.C. 78j, 17 C.F.R. 240.10b-5, and that others violated section 20(a) of the Act. The court concluded that the district court did not properly strike allegations and exhibits from the Third Amended Complaint because the Auditor discovery materials at issue were not obtained in violation of the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. 78u-4(b)(3)(B). The court also concluded that the Third Amended Complaint adequately pleaded false statements and scienter. Accordingly, the court reversed and remanded for further proceedings.
Court Description: Securities Fraud. Reversing the district court’s dismissal of an action under §§ 10(b) and 20(a) of the Securities Exchange Act against officers and directors of Electronic Game Card, Inc., the panel held that the court did not properly strike portions of the third amended complaint and that the complaint adequately pleaded false statements and scienter. The panel held that the stricken allegations were not based on discovery obtained in violation of the Private Securities Litigation Reform Act, which provides that all discovery shall be stayed during the pendency of a motion to dismiss, where the discovery materials were subpoenaed before the defendant former chief executive officer gave notice of his intent to file a motion for judgment on the pleadings. The panel held that a party does not violate a PSLRA discovery stay by relying on materials provided by a third party pursuant to a valid subpoena issued when no PSLRA discovery stay was in effect. The panel held that with the stricken allegations, the third amended complaint adequately pleaded falsity and scienter. The panel remanded the case for further proceedings.
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