September 2013 – Partner Lawrence Steckman defended an outside auditor firm against securities fraud claims in New York’s Southern District. The auditor was accused of having recklessly failed to include a subsequent events disclosure regarding alleged improper, related-party loans. Plaintiffs claimed this rendered its audit opinion regarding PCAOB compliance and financial statement GAAP compliance fraudulent. Although the complaint alleged that various “red flags” put the auditor on notice of fraud, they failed to allege the auditor was aware of them or any reasons why the auditor should have been aware of them. The case was brought as a rule 10b-5 class suit and plaintiffs sought in excess of $40 million. Holding that plaintiffs had failed to properly allege facts indicating the auditor opinion in issue was subjectively known by the auditor to be false by virtue of the purported “red flags,” Judge Rakoff dismissed the complaint for failure to state a claim.