Co-authored by Elizabeth D. Langdale.

The U.S. Court of Appeals for the Ninth Circuit recently affirmed a California district court’s ruling that plaintiffs failed to adequately plead misrepresentation and scienter in support of their claims for violation of Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. Specifically, the Ninth Circuit found that the complaint failed to allege a material omission where there was no allegation that the inclusion of further information regarding a cross-collateralization agreement would have revealed any specific problems with other properties at the time the Private Placement Memorandum (PPM) was issued. The Ninth Circuit also affirmed the district court’s dismissal of plaintiffs’ Securities Act of 1933 claims, finding that plaintiffs had waived any challenge to the dismissal of these claims by failing to challenge the district court’s finding that the PPM did not qualify as a prospectus.

Scarborough v. Berthel Fisher & Company Fin. Servs., Inc., No. 11-55313 (9th Cir. May 24, 2012).