Judge Limits Reliance Theory In BDO Seidman Securities Case

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According to The Legal Intelligencer, a federal judge has denied a motion for class certification made by a group of investors seeking to hold accounting firm BDO Seidman responsible for poor returns on their purchase of notes and other securities from American Business Financial Services.

In determining whether the plaintiffs in Malack v. BDO Seidman met qualifications for receiving class status, US District Court Judge Thomas N. O'Neil Jr. for the Eastern District of Pennsylvania gave a lengthy analysis of the varying cases in New Jersey, Pennsylvania and other district and circuit courts that dealt with the issue at hand in Malack --a fraud-created-the-market theory of reliance. The theory relaxes the burden of proof for plaintiffs regarding reliance when it comes to newly issued securities, which is what the plaintiffs purchased from now bankrupt ABFS.

The idea is that because the notes are new and the price isn't determined by the market, but by the seller, investors can rely on securities laws to protect them from fraud.

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