Under federal law, a judge will allow a securities fraud class action to proceed if plaintiff lawyers can provide strong facts to show that the defendant intended to deceive. Several plaintiffs’ lawyers in a securities fraud class action against Boeing, found that their overeager efforts to supply a confidential witness to prove that Boeing intended to deceive shareholders, backfired. The complaint was thrown out by the judge.
The class-action lawsuit held that the company deceived investors about developments related to the production of a new jumbo jet. Judge Suzanne Conlon threw the complaint out for failing to meet pleading requirements. Then, plaintiffs’ lawyers claimed that an insider at Boeing had information that proved that the company intended to defraud investors. According to lawyers, the vital information included serious documentation that provided evidence of fraud.
When the insider was ultimately questioned, there were more than a few surprises for securities class action attorneys. Far from being an insider at Boeing, the witness did not even work for Boeing, let alone possessing any documentation that the company intended to defraud investors. The so-called “insider” denied having any knowledge of any fraud perpetrated by Boeing. In fact, he did not even speak with plaintiffs lawyers before the defendant’s deposition.
Ultimately, the plaintiffs’ lawyers had to argue that their own witness was lying. The case quickly deteriorated when the witness began leveling allegation of lying against the plaintiffs lawyers. Judge Conlon didn’t wait too long to throw out the complaint once again.
In retrospect, the plaintiffs’ lawyers must know that the biggest mistake they made in this securities fraud class action was disclosing the identity of the witness and then allowing the defendant’s attorneys to question him.