## Facts

- Purchasers of First Pennsylvania Corporation securities brought a putative class action alleging securities fraud and related claims.
- The defendants included First Pennsylvania Corporation, certain officers/directors, and the company’s independent accountants.
- The complaint alleged that, from approximately January 1, 1974 to January 28, 1976, defendants concealed the corporation’s true financial condition through misleading financial reporting.
- Alleged practices included accruing interest as “income” on loans after borrower default, using non-arm’s-length dispositions of foreclosed property to avoid recognizing losses, inadequate recognition of uncollectible real-estate loans, and concealing defaults through loan restructuring.
- Defendants moved to dismiss, arguing the fraud allegations were too conclusory to satisfy Federal Rule of Civil Procedure 9(b).

## Issues

1. Whether the complaint stated “the circumstances constituting fraud” with sufficient particularity under Federal Rule of Civil Procedure 9(b) to survive a motion to dismiss in a securities-fraud class action.

## Decision

- The court denied the motion to dismiss.
- It held the complaint satisfied Rule 9(b) because it alleged the circumstances of the purported fraud with enough specificity to give defendants fair notice and enable a meaningful answer.

## Legal Principles

- Rule 9(b) requires particularity as to the circumstances of fraud, but conditions of mind (including knowledge and intent) may be alleged generally.
- Rule 9(b) is applied in light of Rule 8’s notice-pleading framework and does not require pleading detailed evidentiary proof at the complaint stage.
- In securities-fraud cases where key information is largely within defendants’ control, a complaint may satisfy Rule 9(b) by describing the fraudulent scheme, the general time period, and the methods by which misstatements or concealment allegedly occurred.
- The central test is whether the allegations provide sufficient notice to permit defendants to prepare an adequate responsive pleading and to deter purely conclusory “strike” allegations.

## Conclusion

The court permitted the securities-fraud action to proceed, finding that the complaint’s description of the alleged accounting and reporting practices, coupled with the identified time period and theory of concealment, stated the circumstances of fraud with adequate particularity under Rule 9(b).


Denny v. Carey, 72 F.R.D. 574 (E.D. Pa. 1976)