Widespread losses suffered by many investors during the financial crisis have spawned more than a few fraud claims based upon broadly alleged misconduct affecting many investments or transactions, and even entire lines of business.1 Complaints have sought to portray defendants as rife with fraud, and invite an inference that plaintiff’s losses are an inescapable part of that portrait. The loosely proffered connection to the plaintiff’s own loss, however, has in turn led defendants to argue that such widespread claims lack a particular connection to the plaintiff’s investment even if they are assumed to be true. Under Federal Rule of Civil Procedure 9(b), plaintiffs must allege fraud with particularity—a standard traditionally met by alleging the specifics of “who, what, when, where and how.”2 Recent cases suggest opportunities for successful arguments on both sides of this contentious issue.

Two Recent Decisions. Two Southern District of New York decisions Dexia SA/NV v. Bear, Stearns & Co.3 and Woori Bank v. Citigroup4 illustrate the tension. In Dexia, an investor sued defendants for fraud in connection with its purchase of $1.6 billion dollars in residential mortgage-backed securities (RMBS). The investor alleged the relevant offering documents made false representations regarding the quality and selection process of the underlying loans. In support of its complaint, it cited evidence of defendants’ allegedly systematic disregard of underwriting standards and due diligence practices but offered no evidence directly relevant to the RMBS at issue. Defendants moved to dismiss the complaint pursuant to Rule 9(b), arguing that the complaint failed to allege fraud with particularity because plaintiff did not plead a connection between the wrongful conduct alleged and the specific RMBS it purchased. Judge Jed S. Rakoff denied defendant’s motion, holding that plaintiff’s allegations in the complaint “present a picture of defendants’ unsound mortgage origination and securitization practices so pervasive that a reasonable fact-finder could infer that those practices affected the securitizations at issue in this case.”5