Shareholder Suits: Ruling a Victory for Banks

By Kasner, Jay B.; Gordon, Rita W. | American Banker, August 5, 1992 | Go to article overview
Save to active project

Shareholder Suits: Ruling a Victory for Banks

Kasner, Jay B., Gordon, Rita W., American Banker

Close analysis of a recent opinion by the U.S. Court of Appeals for the Third Circuit indicates that banks may have gained a stronger hand in disputes over the reporting of loan-loss reserves.

UJB Financial Corp. and some of its officers and directors were sued by shareholders for alleged violating federal and state laws and regulations.

As with the dozens of other shareholder actions filed within the past two years against financial institutions, the suit was filed after announcement of a dramatic decline in net income and an increase in loan-loss reserves. which resulted in a significant drop in the price of UJB's common stock.

Loan-loss Reserves in Question

The shareholders charged that the plaintiff class had purchased the New Jersey bank's securities after relying upon "fraudulent" public statements about the adequacy of loan-loss reserves.

While a district court dismissed most of the plaintiffs' federal securities claims for failure to state a claim of fraud - as opposed to mismanagement the appellate court reversed.

It ordered the plaintiffs to revise the complaint to make clear whether they were alleging mismanagement (merely failing to provide adequate reserves) or fraud (intentionally inaccurate reporting of reserve and income figures).

The circuit court observed that where a bank has represented that its practices are "adequate" or "conservative," "the securities laws are clearly implicated if it nevertheless intentionally or recklessly omits certain facts contradicting these representations."

Significantly, however, the appeals court reaffirmed that plaintiffs must specifically provide a factual basis for their allegations of fraudulent conduct: "Plaintiffs must accompany such an allegation with a statement of facts upon which their allegation is based."

The appeals court also:

* Did not specifically determine whether the plaintiffs in that case had pleaded their claim with the specificity required by Rule 9(b) of the Federal Rules of Civil Procedure.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Shareholder Suits: Ruling a Victory for Banks


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?