Podraza v. Whiting, No. 14-1947 (8th Cir. 2015)
Annotate this CaseIn 2010, a West Virginia federal judge ordered Patriot to install environmental remediation facilities at two of its mines. From October 2010 until May 2012, for accounting purposes, Patriot recorded the installation costs as capital expenditures. After corresponding with the Securities and Exchange Commission about this accounting treatment, Patriot restated its financial documents in 2012 to recognize the installation costs as expenses. The restatement caused Patriot’s asset retirement obligation expense and net loss to increase by $49.7 million for 2010 and $23.6 million for 2011. Patriot’s share priced dropped. The company filed for bankruptcy. A securities fraud class action was filed on behalf of all persons who acquired Patriot securities between October 2010, and July 2012, alleging violations of sections 10(b), 20(a), and 20(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78a and SEC Rule 10b–5, against Patriot’s former Chief Executive Officer and former Chief Financial Officer. Plaintiffs argued Defendants fraudulently capitalized the environmental facilities’ installation costs to avoid the impact expensing the costs would have on Patriot’s bottom line. The district court dismissed for failing to meet the heightened requirement for pleading scienter under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. 78u-4. The Eighth Circuit affirmed, finding that the more compelling inference is that Defendants did not act with fraudulent intent.
Court Description: Shepherd, Author, with Wollman and Smith, Circuit Judges] Civil case - Securities Fraud. In action by shareholders alleging defendants, officers of Patriot Coal, violated various provisions of the Securities and Exchange Act by fraudulently capitalizing environmental remediation facilities' installations costs to avoid the impact expensing the costs would have had on Patriot's bottom line, the district court did not err in dismissing the action on the ground the complaint did not meet the Private Securities Litigation Reform Act of 1995's heightened requirement for pleading scienter.
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