Pleading Fraud in Federal Court
The United States Court of Appeals for the Fifth Circuit has reiterated the pleading standards applicable in federal court for securities fraud and for common-law fraud in Flaherty & Crimrine Preferred Income Fund Inc. v. TXU Corp.
Federal Rule of Civil Procedure 9(b) requires a pleader to state with particularity the circumstances constituting fraud or mistake. The Fifth Circuit strictly interprets this requirement, and demands that a plaintiff specify (1) the statements alleged to be fraudulent, (2) the speaker, (3) when the statement was made, (4) where the statement was made, and (5) why the statement was fraudulent. In Flaherty, the court reminds us that a plaintiff cannot satisfy the pleading requirements with global or group allegations such as "all defendants" made the fraudulent statement. Flaherty further appears to impose a requirement of delineating whether the statement alleged is an affirmative misrepresentation or an omission. Flaherty also discusses the type of evidence necessary to plead intent in a securities fraud case, which is a higher standard than common law fraud, but still subject to Rule 9(b).
