Tuesday, October 11, 2005

Eighth Circuit Rebuffs Cerner Action

A Panel of the Eighth Circuit has said no to the Cerner securities class action, which basically seems to be a projections case. No to the particularity, as Plaintiff fails "to allege the amount of any overstatements," and "the complaint is devoid... of any indication that this alleged loss of deals, even if 'material,' is necessarily inconsistent with Cerner's statements that its demand was 'strong.' A company could conceivably lose a material number of deals it had pursued, and yet continue to see a strong demand for its products and substantial future opportunities. Furthermore, there is no indication on the face of the complaint that even a material loss of deals necessarily rendered Cerner unable to achieve its projected earnings. Finally, and perhaps most importantly, the complaint does not identify a single specific deal that was lost due to alleged changes in Cerner's corporate structure and strategies."

The Panel also said no to the scienter, as one executive selling "4% of his stock" "is certainly not unusual on its face." Also, "the complaint cites the statement of a former Cerner regional sales manager that he and some of his personnel discussed among themselves the unattainable nature of the earnings forecasts," but "at best, this allegation establishes that such an opinion was held by the regional sales manager and his peers. It sheds no light on the relevant issue of whether the Individual Defendants shared this view, or indeed of whether the forecasts were necessarily unattainable."

You can read In re Cerner, issued October 6, 2005, here, or at 2005 U.S. App. LEXIS 21610.

Nugget: "A desire to increase executive compensation is also insufficient to prove scienter."

No comments: