Who Knew What When: US Class Action Analyzes Corporate Knowledge Of Wrongdoing

Article by Lawrence E. Ritchie and Eric Morgan

A US appeals court has dismissed a proposed securities fraud class action, clarifying when a corporation will be deemed to make misstatements knowingly. The decision emphasizes the importance of compliance procedures for vetting procedures when making public statements and also demonstrates the strict approach US courts take when examining pleadings alleging securities fraud.

The Claim

The plaintiff shareholder in In Re: Omnicare, Inc. Securities Litigation brought a proposed class action against the defendant company, a pharmaceutical care provider, and several executives. The plaintiff alleged the defendants had committed securities fraud, making misrepresentations about the company's compliance with Medicare and Medicaid regulations. The plaintiff alleged the company knew these statements were false based on internal audits that revealed evidence of fraudulent billing practices.