September 26, 2008

We're Better Than Those Guys

The recent string of appellate decisions involving securities class actions includes Ley v. Visteon Corp., 2008 WL 3905469 (6th Cir. Aug. 26, 2008), which contains a couple of interesting holdings.

Comparisons to Competition - The plaintiffs alleged that Visteon failed to disclose how high its costs were relative to its competition. The court declined to "advocate a rule that requires companies to draw such comparisons." Quoting from an older Third Circuit opinion, the court found that "it is precisely and uniquely the function of the prudent investor, not the issurer of securities, to make such comparisons among investments."

Discounting Confidential Witnesses - The Seventh Circuit has held that in evaluating the pleading of scienter (i.e. fraudulent intent), allegations from confidential witnesses must be "discounted" and that discount will usually be "steep." Although there is some confusion as to whether that holding remains good law, the Sixth Circuit cited it favorably in concluding that the confidential witness allegations in the Visteon complaint were insufficient to establish any inference of scienter.

Holding: Dismissal affirmed.

Posted by Lyle Roberts at September 26, 2008 8:19 PM | TrackBack
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