March 20, 2014 Articles

Testing and Attacking Confidential Witness Allegations at an Early Stage

Recent cases address CW allegations and the procedural devices defendants have used to discredit them

By John D. Pernick and Ryan D. Nassau

Almost every securities fraud complaint contains allegations supported by statements of confidential witnesses (CWs). CW statements may be inaccurate, but generally, on a motion to dismiss, the allegations of a complaint are taken as true. Recent cases involving false CW allegations have highlighted the potential for abuse as well as the procedural difficulties defendants face when seeking to attack the veracity of allegations based on CW statements. We review some of the recent cases addressing CW allegations and the procedural devices defendants have used to discredit CW allegations and obtain dismissals at an early stage.

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