represented that such trading was limited to "stocks of high quality companies generating superior growth characteristics in terms of profits, cash flows, and internal rates of return."
In administering the Account, Defendants traded extensively in puts, calls, and options on the stock market index. These actions constituted operation of the Account as both an option and an index account, in contravention of The Pits' stated investment objective and of the parameters set forth in the Management Guidelines and the New Signature Portfolio. Numerous trades also involved the purchase of abnormally small units of options and stock. Plaintiffs invested The Pits' monies in numerous companies with capitalizations of less than three billion dollars.
As a result of, inter alia, these option and small lot trades, The Pits incurred substantial losses and unreasonably high commission charges.
I. Legal Standards
A. Rule 12(b)(6)
Rule 12(b)(6) imposes a substantial burden of proof upon the moving party. A court may not dismiss a complaint unless the movant demonstrates "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989); Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984);. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).
B. Rule 9(b)
Rule 9(b), Fed. R. Civ. P., requires that in all allegations of fraud, the circumstances constituting the fraud must be stated with particularity. See Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1127 (2d Cir. 1994); In re Time Warner Inc. Secs. Litig., 9 F.3d 259, 265 (2d Cir. 1993); Shemtob v. Shearson, Hammill & Co., 448 F.2d 442, 444-45 (2d Cir. 1971). The pleading must be sufficiently particular to serve the three goals of Rule 9(b) which are (1) to provide a defendant with fair notice of the claims against him; (2) to protect a defendant from harm to his reputation or goodwill by unfounded allegations of fraud; and (3) to reduce the number of strike suits. See DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987); O'Brien v. Price Waterhouse, 740 F. Supp. 276, 279 (S.D.N.Y. 1990), aff'd, 936 F.2d 674 (2d Cir. 1991).
Our Court of Appeals has required that allegations of fraud (1) adequately specify the statements made that were false or misleading, (2) give particulars as to the respect in which it is contended that the statements were fraudulent, and state the (3) time and place the statements were made and (4) the identity of the person who made them. See McLaughlin v. Anderson, 962 F.2d 187, 191 (2d Cir. 1992); Cosmas, 886 F.2d at 11. Finally, the Court of Appeals has held that a complaint charging fraud must assert that defendant possessed an intent to defraud or, at minimum, "allege facts that give rise to a strong inference of fraudulent intent." Shields v. Citytrust Bancorp., 25 F.3d at 1128 (citations omitted); see Beck v. Manufacturers Hanover Trust Co., 820 F.2d 46, 50 (2d Cir. 1987), cert. denied, 484 U.S. 1005, 98 L. Ed. 2d 650, 108 S. Ct. 698 (1988), overruled on other grounds by United States v. Indelicato, 865 F.2d 1370 (2d Cir. 1989).
C. Rule 12(e)
Rule 12(e) states:
If a pleading to which a responsive pleading is permitted is so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading, the party may move for a more definite statement before interposing a responsive pleading. The motion shall point out the defects complained of and the details desired.