On September 26, 2008, Judge William Pauley of the U.S. District Court for the Southern District of New York dismissed the securities class action against American Express Corp. The complaint, filed in 2002, alleged that the defendants failed to disclose that American Express was investing in a risky portfolio of high-yield or “junk” bonds that carried the potential for substantial losses if default rates in the junk bond market increased. The complaint alleged that American Express misrepresented these investments as conservative.
The SDNY had already dismissed the case once but was reversed by the Second Circuit, which granted leave to amend the complaint. Given the chance to reconsider its dismissal, the court again dismissed the case, finding that plaintiffs failed to adequately plead scienter.