Hunton Retail Law Resource

Earlier this month, the U.S. Securities and Exchange Commission ("SEC") charged publicly traded RPM International Inc. ("RPM") and its general counsel with violations of the antifraud provisions of the federal securities laws due to failures to disclose and account for material information related to an ongoing government investigation under the False Claims Act. The SEC alleges that the general counsel advised RPM’s CEO and audit committee of the investigation as early as April 2011, but in subsequent years, the general counsel allegedly failed to inform the company’s CEO, CFO, audit committee and external auditor of particular information known to him that showed RPM’s true financial exposure arising out of the investigation. As a result of the general counsel’s conduct, the SEC alleges that RPM filed various false and misleading reports with the SEC, thereby misleading investors about the company’s financial results, internal controls and the accuracy of its books and records. RPM ultimately restated its financial results. The SEC’s complaint seeks permanent injunctions, disgorgement and financial penalties.

How much particularity is required to plead a claim under the False Claims Act (“FCA”), a statute designed to root out fraud against the government? While courts purport to apply the requirements of Federal Rule of Civil Procedure 9(b) and its stringent standards for pleading fraud, several circuits take a more flexible approach when assessing claims brought under the FCA. The United States Supreme Court recently declined to take up the matter and resolve this key question. Accordingly, the forum in which an FCA suit is brought continues to have a dramatic impact on whether it will ...