10-3935 AnchorBank, FSB, v. Hofer

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Securities
Fraud; dismissal

Where a complaint alleged that an employee of an investment fund colluded to artificially inflate and deflate units of the fund, for his own gain, the complaint should not have been dismissed.

“We find that the plaintiffs-appellants met the stringent pleading requirements that were required of them in filing their suit against Hofer. On appeal, Hofer argues that AnchorBank and Plumb failed to adequately plead scienter and reliance. We disagree with Hofer’s contention that the plaintiffs-appellants failed to adequately plead these elements. The plaintiffs-appellants alleged that Hofer concocted and executed a scheme whereby he would act in cahoots with two other AnchorBank employees to artificially inflate and deflate the value of Fund unit and AnchorBank stock values; the Fund Trustee relied on this manipulation when it decided how to purchase and sell stock to maintain its required cash-to-stock ratio; and unwitting Fund participants relied on the manipulated Fund unit and AnchorBank stock values when they made their comparatively uninformed purchase and sale decisions. Second Am. Compl. at ¶¶ 20- 32. The inference of scienter that is raised in the complaint remains strong in light of competing, plausible explanations offered by Hofer, such as that he was simply following the rudimentary investment strategy of buying low and selling high. And while the competing explanations regarding scienter and reliance could be useful to the trier of fact, they are insufficient in this case to justify dismissal for failure to state a claim on which relief can be granted.”

Reversed and Remanded.

10-3935 AnchorBank, FSB, v. Hofer

Appeal from the United States District Court for the Western District of Wisconsin, Crocker, Mag. J., Williams, J.

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