Robert Yates v. Municipal Mortgage & Equity
2014 U.S. App. LEXIS 4305
| 4th Cir. | 2014Background
- MuniMae restated financial statements beginning with 2005-2004 periods due to FIN 46R and LIHTC fund consolidation issues.
- The company had large LIHTC Funds and operated them via LIHTC Funds with off-balance-sheet treatment pre-2003, then consolidated later.
- Restatements announced in 2006-2007 revealed material weaknesses in internal controls and substantial restatement costs.
- The class period spans May 3, 2004, to January 29, 2008, overlapping with multiple restatements and restatement-related disclosures.
- Plaintiffs filed securities claims under §§ 10(b)/20(a) and §§ 11, 12(a)(2), and 15; district court dismissed for lack of scienter and standing, respectively, leading to this appeal.
- Court reviews 12(b)(6) dismissal using Tellabs and Matrix Capital standards; relies on SEC filings and public documents in record.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the PSLRA scienter standard was met | Plaintiffs argue CW evidence shows strong inference of fraud | MuniMae contends alleged facts show at most negligence | No strong inference of scienter; dismissal upheld |
| Whether confidential witnesses support strong scienter | CW statements show knowledge/covert concerns | Statements are vague; not compelling for scienter | No strong inference; allegations insufficient to prove scienter |
| Whether red flags establish scienter | Red flags (restatements, CFO turnover, PwC firing) indicate fraud | Red flags explained by complexity and oversight challenges | Red flags insufficient to overcome non-scienter inference; negligent at most |
| Whether the §12(a)(2) standing requirement was met for the SPO claim | Dammeyer purchased SPO shares traceable to offering | Confirmation and timing fail to show direct SPO purchase | Standing not established; §12(a)(2) claim dismissed |
Key Cases Cited
- Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d 172 (4th Cir. 2009) (holistic scienter standard; strong inference required against all inferences)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (S. Ct. 2007) (strong inference standard for scienter; compare in context)
- Stoneridge Inv. Partners v. Scientific-Atlanta, Inc., 552 U.S. 148 (S. Ct. 2008) (implied private right of action for §10(b) claims; reliance on scheme facts)
- Pub. Emps.’ Ret. Ass’n of Co. v. Deloitte & Touche LLP, 551 F.3d 305 (4th Cir. 2009) (context for evaluating scienter and disclosures; holistic view)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (holistic scienter assessment; weigh malicious vs. innocent inferences)