Opinion ID: 785790
Heading Depth: 5
Heading Rank: 7

Heading: Consultant

Text: 77 The Complaint alleges that in early 2000, Intrenet hired an outside consultant to investigate problems in the Company's accounting and internal control systems. The consultant allegedly discovered improprieties, ultimately leading to the October 13, 2000, press release that initiated Intrenet's collapse. Plaintiffs maintain that after the consultant was hired and discovered the problems, a strong inference that the Individual Defendants knew of or recklessly disregarded the problems is inescapable. 78 First of all, the Court is not willing to infer fraudulent intent from the fact that the Company hired a consultant to examine its accounting systems. If anything, this fact counters an inference that the Individual Defendants were trying to keep the alleged accounting problems hidden from view. Next, the thrust of Plaintiff's argument seems to be that the outside consultant readily discovered the accounting improprieties in a short time period, and yet the Individual Defendants continued to issue materially false and misleading financial statements and press releases, and did not ultimately publicize the deficiencies to the investing public until many months later, on October 13, 2000. In the intervening time, Plaintiffs maintain, the Individual Defendants must have known or at best recklessly disregarded the truths the consultant unearthed. See Danis v. USN Communications, Inc., 73 F.Supp.2d 923, 939 (N.D.Ill.1999) (Problems readily recognized by an outsider can be presumed to be known to a company's management and directors.). Therefore, Plaintiffs urge, a strong inference of scienter is especially warranted after the consultant arrived. 79 The allegations regarding the consultant fail to support a strong inference of the Individual Defendants' scienter because they wholly lack factual particularity. The Complaint offers the conclusory assertion that the consultant swiftly uncovered the accounting irregularities, but nowhere does it provide any meaningful information regarding when or in what manner the consultant made his discoveries. The relevant issue in determining scienter is not when the accounting improprieties occurred, but rather whether and when the Individual Defendants knew about them. There is no basis in the Complaint's allegations concerning the consultant from which the Court could conclude that the Individual Defendants knew anything about the problems prior to the October 13, 2000, press release. Moreover, Plaintiffs fail to specify what the consultant learned and how he learned it, other than offering the conclusory allegation that the consultant discovered Intrenet's alleged accounting improprieties. Claims of securities fraud cannot rest on speculation and conclusory allegations. Comshare, 183 F.3d at 553-54. 80