Closer Scrutiny Of 'Confidential Informants'

Closer Scrutiny Of 'Confidential Informants' - 4/15/2009 , Class Action News, Class Action, Securities News, shareholder class action, claim, litigation, securities action, common stock'>

Home

Index of Filings

News and Press Releases

Filings

Decisions

Settlements

Litigation Activity Indices

Top Ten List

Annual/Quarterly Updates

Clearinghouse Research

Articles & Papers

Search

Related Sites

About Us

Local Rules

Sponsors

Register

_______________
Copyright © 2001
Stanford Law School

2009 News and Press Releases

SEARCH

News	News 2009
HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

Closer Scrutiny Of 'Confidential Informants'
Susan E. Hurd and Elizabeth P. Skola, Alston & Bird LLP

Securities Law 360. April 15, 2009
_________________________________________________________________________

EXCERPT: Given the current economic climate, many companies have found it necessary to reduce the size of their work force. These same companies may also be experiencing a decline in their stock prices as a result of the less than favorable economic conditions. Regrettably, any significant stock price decline may lead to the filing of a securities fraud class action. If a lawsuit is filed under these facts, it is a virtual certainty that the resulting complaint will be based in large measure on information supposedly gleaned from former employees who will be described as “confidential witnesses” or “confidential informants.” Plaintiffs’ counsel regularly employ private investigators to locate former employees in the hopes of discovering information that may be used to attempt to satisfy the heightened pleading requirements that apply to securities fraud claims under the Private Securities Litigation Reform Act (the “Reform Act”).[1] As described below, the Reform Act requires that plaintiffs plead in detail the circumstances of the alleged fraud as well as the basis for their beliefs that a fraud has occurred.[2] Plaintiffs are also required to plead a strong inference of fraudulent intent — or “scienter” — on the part of each defendant named in the case.[3]Allegations based on information from confidential sources are often used in an attempt to satisfy these requirements, but are particularly prone to abuse and, thus, require greater scrutiny, as recent court decisions have acknowledged. Indeed, as discussed below, the law on confidential informants has evolved in a way that is particularly favorable to defendants who face complaints that either implicitly or explicitly attempt to rely on such individuals. The pleading requirements for confidential informant allegations seek to prevent meritless claims from proceeding to discovery based on the word of unnamed informants, who it may later be revealed had no reasonable basis for knowing “the facts” alleged.

Back to News page | Back to Archived News 2009 page | Back to Top

�