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Current Developments in the Commercial Divisions of the
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Posted: April 4, 2016

Fraud Claim Dismissed for Failure Adequately to Plead Scienter

On March 24, 2016, the First Department issued a decision in Israel Discount Bank of N.Y. v. EisnerAmper LLP, 2016 NY Slip Op. 02149, affirming the dismissal of a fraud claim for failure adequately to plead scienter, explaining:

Plaintiff, a lender to asset-based lender nonparty Oak Rock Financial, LLC, alleges fraud against defendant, Oak Rock’s accountant, based on defendant’s failure to discover that Oak Rock’s founder and manager was manipulating Oak Rock’s loans receivable. However, the complaint fails to allege that the opinion was based on grounds so flimsy as to lead to the conclusion that there was no genuine belief in its truth or that the opinion amounted to a reckless misstatement for which defendant could be held liable for fraud. At most, the complaint alleges negligence, which, in the absence of privity or some words or action by defendant directed to plaintiff, does not lie. None of the alleged “red flags” pleaded in the complaint creates an inference that defendant had notice of particular circumstances raising doubts as to the veracity of the information provided to it by Oak Rock regarding Oak Rock’s accounts receivable.

(Internal quotations and citations omitted) (emphasis added).

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