Loran Group v. Peregrine Systems, Inc.
Docket: No. 06-55197
Court: Court of Appeals for the Ninth Circuit; January 22, 2009; Federal Appellate Court
Plaintiff-Appellant Loran Group seeks to hold seventeen individuals and four entities liable for securities fraud linked to Peregrine Systems, Inc. under Sections 10(b) and 20(a) of the Securities Exchange Act. Loran appeals district court orders that dismissed claims against 11 of 21 defendants. The case was previously put on hold pending the Supreme Court's ruling in Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., and later remanded to allow settlement negotiations for some defendants. The appeal now focuses solely on the KPMG Defendants, who allegedly assisted Peregrine in improperly recognizing $32.1 million in revenue through “parking” transactions, which misled investors about financial performance. The district court acknowledged Peregrine's fraud but questioned who could be liable. Under Stoneridge, liability requires proving elements such as scienter and reliance. Loran argues that press releases about KPMG’s partnership with Peregrine establish reliance through the fraud-on-the-market presumption, as outlined in Basic Inc. v. Levinson. However, the court noted that these press releases do not mention the parking transactions and merely confirm the partnership, which does not mislead the public. KPMG's involvement was related to consulting services that were publicly announced but did not disclose any deceptive acts necessary for establishing liability under 10(b). The press releases in question do not disclose any specific transaction between KPMG and Peregrine, failing to reveal the allegedly deceptive acts of the KPMG Defendants. As a result, these press releases do not establish a presumption of reliance, as outlined in Stoneridge, where it was determined that deceptive acts must be communicated to the public for such a presumption to apply. Peregrine misled its auditor and submitted fraudulent financial statements independently of any necessity created by the KPMG Defendants. Loran sought permission to amend the First Amended Complaint (FAC) to include references to the press releases but was denied leave to amend, as the proposed changes would not remedy the complaint's deficiencies. The district court's dismissal of Loran's claims against the KPMG Defendants with prejudice was affirmed. Peregrine is not a defendant in this case due to its bankruptcy in 2002 and subsequent acquisition by Hewlett-Packard in 2005. Loran is not attempting to hold the KPMG Defendants vicariously liable for primary violations under § 20(a), and recent legal precedents regarding primary liability under § 10(b) in this circuit have shifted following the Stoneridge decision. Five press releases were included as exhibits in Loran’s Request for Judicial Notice from February 15, 2008.