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Rothman v. Gregor

Shareholders stated claim for securities fraud against officers and directors of software company with allegations that company misrepresented its income by failing to expense royalty advances after it was clear that capitalized value of advances was misleading.

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The full case caption appears at the end of this opinion.

This appeal concerns a securities fraud claim against a seller of computer software for misrepresenting its income by failing to expense royalty advances after itbecame clear that the capitalized value of these advances was significantly overstated. Joel Rothman, representing a plaintiff class, appeals from the December 6,1999, judgment of the District Court of the Southern District of New York (David Edelstein, Judge), dismissing with prejudice plaintiffs’ claims againstDefendant-Appellees GT Interactive Software Corp. (“GT”) and its officers, and Arthur Andersen LLP (“Anderson”). We conclude that the complaint meets thepleading requirements for a securities fraud action against GT and its officers. We also conclude that the District Court properly dismissed the claim against Andersenfor failure to sufficiently plead scienter. We therefore affirm in part, reverse in part, and remand.

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