Second Circuit Affirms Applicability Of Section 10(b)'S Heightened Pleading Standard On Wrongdoing Underlying Misstatement Or Omission

On December 10, 2019, the Second Circuit, in Gamm v. Sanderson Farms, held that when a securities fraud complaint alleges that statements were rendered false or misleading through the non-disclosure of illegal activity, the facts of the underlying wrongdoing must be pleaded with particularity in accordance with Federal Rule of Civil Procedure (“FRCP”) 9(b) and the Private Securities Litigation Reform Act (“PSLRA”).¹

The decision places a high bar on Section 10(b) claims based on undisclosed wrongdoing, requiring that the details not only of the misstatement or omission be pleaded with particularity, but also those of the underlying misconduct.  It thus will make it far more difficult for plaintiffs to plead similar claims in the future.