876 F. Supp. 2d 616
D. Maryland2012Background
- MuniMae syndicated LIHTCs, retaining a small ownership and earning fees.
- In 2004 GAAP FIN 46R required consolidation of LIHTC funds; MuniMae initially did not consolidate all funds.
- First Restatement (2002–2005) announced March 2006; Second Restatement (2003–2005) announced September 2006; restatement ultimately completed in 2009.
- Class period includes purchases of MuniMae stock from May 3, 2004 to January 29, 2008; dividends were maintained despite restatement costs.
- January 28–29, 2008 disclosures announced dividend cut and NYSE delisting, causing a sharp stock decline.
- Securities Act/Securities Exchange Act claims asserted against MuniMae, officers, directors, underwriters, and others related to SPO (2005) and DRP (1997) offerings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| scienter standard for 10b-5 claims | Plaintiffs allege strong inferences of intent or severe recklessness. | Defendants contend disclosures and auditor involvement negate scienter. | No cogent inference of scienter; claims dismissed |
| loss causation viability for 10b-5 | Disclosures about restatement costs caused stock drop. | Stock declines could be due to other factors; some warnings were given. | Loss causation adequately pleaded |
| control person liability under §20(a) | Controlling individuals liable for underlying §10(b) violations. | Underlying §10(b) claims fail; no predicate violation. | Dismissed |
| Securities Act claims (DRP/SPO) timeliness and standing | DRP and SPO statements allegedly false; plaintiffs stood as purchasers. | Some plaintiffs lack signing/standing; statute of repose and limitations issues apply. | Counts Three–Five survive; SPO counts largely dismissed for standing/repose; DRP counts survive |
| merits of §11/§12(a)(2) pleading and 'immediate seller' requirement | Plaintiff Dammeyer traceable to SPO; section 12(a)(2) claims alleged | Insufficient pleading of direct purchase from issuer; lack of immediate seller proof for SPO | DRP claims viable; SPO §§11/12(a)(2) claims dismissed for standing and seller requirements |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (holistic inference of scienter required)
- Matrix Capital Mgmt. Fund v. BearingPoint, Inc., 576 F.3d 172 (4th Cir. 2009) (holistic scienter analysis; strong inference standard)
- Teachers’ Ret. Sys. v. Hunter, 477 F.3d 162 (4th Cir. 2007) (recklessness standard for scienter in PSLRA context)
- Cozzarelli v. Inspire Pharms., Inc., 549 F.3d 618 (4th Cir. 2008) (Rule 9(b) pleading and fraud specificity; §11/12 claims caution)
- In re Mutual Funds Inv. Litig., 566 F.3d 111 (4th Cir. 2009) (loss causation and pleading standards for mutual funds actions)
- Atlas Air Worldwide Holdings, Inc. Sec. Litig., 324 F. Supp. 2d 474 (S.D.N.Y. 2004) (significant restatement as evidence bearing on scienter)