National Elevator Industry Pension Fund v. VeriFone Holdings, Inc., 704 F.3d 694

National Elevator sues VeriFone, its CEO Bergeron, and former CFO Zwarenstein for violations of §§ 10(b), 20(a), and 20A, related to a December 2007 restatement after the Lipman merger.
Allegations center on three quarters where internal reports showed margins below projections, yet public filings claimed success due to post-merger improvements aided by aggressive accounting adjustments.
VeriFone’s internal flash reports showed margin shortfalls; management allegedly directed Periolat to make unsupported adjustments to meet targets, with Bergeron and Zwarenstein monitoring results but not questioning the basis for the entries.
Auditor Ernst & Young raised inventory-control concerns in March 2007; despite purported remediation, misstatements continued until the December 2007 restatement reducing reported revenues and margins.
Restatement caused a sharp stock drop and led to the consolidation of securities fraud actions, with National Elevator designated lead plaintiff.
The district court dismissed the §10(b) and Rule 10b-5 claims for lack of scienter and ruled §20A, §20(a) claims as to certain defendants; the appeal focuses on scienter and the sufficiency of other claims.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the complaint pleads a strong inference of scienter.	National Elevator asserts a holistic inference of deliberate recklessness by Bergeron, Zwarenstein, and VeriFone.	Defendants contend the allegations are insufficient to show scienter under Tellabs and PSLRA.	Holistic inference of deliberate recklessness supported; scienter adequately pled.
Whether the §10(b)/Rule 10b-5 claims are adequately pled under Rule 9(b) and PSLRA.	Allegations sufficiently specify misstatements and the mental state supporting fraud.	Arguments deemphasize sufficiency of particularized facts tying statements to scienter.	Claims adequately pled against VeriFone, Bergeron, and Zwarenstein.
Whether §20A insider trading claims survive given the underlying §10(b) violation.	If §10(b)/10b-5 is pled, §20A can attach based on trading on material, nonpublic information.	If underlying scienter is not established, §20A cannot stand.	§20A claims survive because §10(b) claims are pled adequately.
Whether §20(a) control person claims survive without a viable underlying violation by the controlled person (Periolat).	Bergeron and Zwarenstein controlled VeriFone’s fraud and thus are liable under §20(a).	Without a primary violation by Periolat, §20(a) fails.	§20(a) claims as to Bergeron and Zwarenstein dismissed; Periolat’s lack of pleaded §10(b) culpability defeats control liability.

Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (U.S. 2011) (holistic review required; strong inference must be cogent and at least as compelling as opposing inferences)
Tellabs, Inc. v. Makor Issues & Rights, 551 U.S. 308 (U.S. 2007) (comprehensive standard for pleading scienter; consider allegations collectively with plausible opposing inferences)
Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (strong inference of scienter requires cogent, at least as compelling inference as any opposing one)
In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970 (9th Cir. 1999) (recklessness standards for scienter; omitted or exaggerated statements bear on scienter)
Hollinger v. Titan Capital Corp., 914 F.2d 1564 (9th Cir. 1990) (reckless conduct defined as extreme departure from ordinary care; actual awareness required)
New Mexico State Inv. Council v. Ernst & Young LLP, 641 F.3d 1089 (9th Cir. 2011) (holistic approach to scienter post-Matrixx; whether allegations collectively show scienter)
Daou Systems, Inc. v. ? (in re), 411 F.3d 1006 (9th Cir. 2005) ( PSLRA pleading standards and inference-based scienter analysis)
Frank v. Dana Corp., 646 F.3d 954 (6th Cir. 2011) (warns against overreliance on piecemeal assessment; forest versus trees in scienter analysis)