This section contains the nature of the case and procedural background.

DiLeo (P) owned stock in Continental Illinois Bank. Continental made increasingly risky loans during the 1980s. Continental identified some nonperforming loans and established reserves to cover anticipated losses. During this period, Ernst (D), the corporate accountant for Continental, certified the financial statements, including the accounts receivable. Almost every financial report issued by Continental identified ever-larger volumes of nonperforming loans and established reserves. DiLeo's (P) Continental stock became nearly worthless. P claimed that it was because the bank did not increase its reserves fast enough to prevent failure. P filed a class action suit under SEC Rule 1Ob-5, alleging securities fraud. The pleadings contained only general information taken from the various annual reports certified by D. DiLeo (P) did not identify any specific problem loans or how D could have recognized that Continental's reserves were inadequate. The district court declined to certify the class because the action duplicated a suit which was already settled. The court then dismissed the suit because P failed to give any examples in his pleadings of how he was defrauded by D or how D aided and abetted Continental in violating securities laws. P appealed.

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