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Law School Case Brief

Denny v. Barber - 576 F.2d 465 (2d Cir. 1978)


Damage actions under S.E.C. Rule 10b-5, 17 C.F.R. § 240.10b-5, can be brought only by those persons whose active participation in the marketing transaction promises enforcement of the statute without undue risk of abuse of the litigation process and without distorting the securities market.


Plaintiff stockholder filed a class action on behalf of a class of all persons who purchased stocks and securities in defendant corporation alleging false and fraudulent statements by defendants. The district court dismissed on the grounds that he failed to meet the "fraud with particularity" pleading requirements and to state a claim as required by the rules. Plaintiff appealed.


Did the district court properly dismiss plaintiff’s complaint for failure to meet the pleading requirements?




The court found that the complaint was properly dismissed because plaintiff had failed to state what specific transactions were knowingly false on the part of defendant corporation or when defendants knew the challenged investments had become so risky that disclosure was required.

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