DSAM Global Value Fund v. Altris Software, Inc.

The issue in this case is whether the allegations of a seriously botched audit are sufficient to plead scienter under the heightened pleading requirements of the Private Securities Litigation Reform Act (“PSLRA”) and In re Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970 (9th Cir.1999). It is alleged that the auditor egregiously failed to see the obvious — that according to Generally Accepted Accounting Principles (“GAAP”), millions of dollars in revenue from software sales reflected in a financial statement should not have been recognized. We hold that the complaint sets out a compelling case of negligence— perhaps even gross negligence — but does not give rise to a strong inference that the auditor acted with an intent to defraud, conscious misconduct, or deliberate recklessness, as is required in a securities fraud case. We affirm the district court’s dismissal of the plaintiffs’ complaint.

I.

Appellants were shareholders of Altris Software, Inc. a publicly-traded company *388 that develops document management software. Appellants brought this securities fraud lawsuit against Pricewaterhouse-Coopers, LLP, the certified public accounting firm hired by Altris to audit…