Plastic2Oil Inc (PTOI)

[Johnik]

I'm afraid that the case you cited isn't on point:
http://scholar.google.com/scholar_case?q=288+f.3d+385&hl=en&as_sdt=2,22&case=14286418464571855843&scilh=0
The plaintiff in that case named as defendants both the company and the auditor. The auditor is not a named defendant in the JBI case. The auditor was judged to lack scienter and absolved of liability, not the company.

loanranger, the same principles apply with respect to the company. For two examples, check out Colin v. Onyx Acceptance Corp., 31 Fed. Appx. 359 (9th Cir. 2002) and In re FVC.Com Securities Litigation, 32 Fed. Appx. 338 (9th Cir. 2002). Both were securities fraud class action cases in the Ninth Circuit; both cases held that a violation of GAAP, standing alone, is insufficient to show scienter; and in both cases the complaint against the corporation was dismissed (with dismissal affirmed on appeal). Here is an excerpt from the Colin case (citations omitted for brevity and readability):

A complaint alleging fraud must meet the heightened pleading standards of Fed.R.Civ.P. 9(b), which requires that “in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” The Private Securities Litigation Reform Act of 1995 (“PSLRA”) heightens the particularity requirements of Rule 9(b) as applied to federal securities class action lawsuits. . . . The PSLRA requires a plaintiff to “plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct.” . . . Simple recklessness or a motive and opportunity to commit fraud is not sufficient. . . . “In order to show a strong inference of deliberate recklessness, plaintiffs must state facts that come closer to demonstrating intent.” . . . A plaintiff must “provide all the facts forming the basis for [his or] her belief [that the defendant acted with deliberate recklessness] in great detail.” . . .

In his complaint, the plaintiff relies upon a violation of Generally Accepted Accounting Principles (“GAAP”) to establish the required element of scienter. However, “the mere publication of inaccurate accounting figures, or a failure to follow GAAP, without more, does not establish scienter [in a securities fraud claim].” . . . Thus, the allegations do not state a prima facie case under pre-PSLRA law, . . . much less the heightened pleading standard under the PSLRA.

I did not cite to these cases previously because I unfortunately do not know a website where I can link to cases in the Federal Appendix. Going outside of the Ninth Circuit, you could try this case from the Tenth Circuit, which also addresses the issue of alleged GAAP violations (on page 1261):

http://scholar.google.com/scholar_case?q=264+f.3d+1245&hl=en&as_sdt=2,22&case=9544841858288063813&scilh=0

The allegations you noted that are set forth in Paragraph 51 of the complaint are not "particular facts giving rise to a strong inference" that the defendant acted with the requisite state of mind, as required by statute. Those allegations are conclusory, and would not be sufficient to satisfy particularity. That said, the complaint does indeed contain a host of particular facts, but they are found elsewhere in the complaint. Take, for example, paragraphs 20 through 34. The question then is whether the particular facts pled in the complaint raise a strong inference of fraudulent intent. That question will be one addressed to the expertise of the U.S. District Court judge.

I'll be out most of the day today, but if I can find a way to link to the Federal Appendix cases tonight, I will.