Rush Limbaugh's uncle (it's true, really), Judge Stephen N. Limbaugh, Sr. (E.D. Mo.), has issued two decisions in the Tripos securities class action. In them, he denies the Company's (including its CEO and CFO) motion to dismiss, although in the other he decides to kick Ernst and Young out of all the fun. Basically, Plaintiffs alleged that Defendants knew of "a lost software contract and improper accounting methods, which when eventually disclosed, caused a significant drop in the stock value." However, in spite of this, they continued "to forecast extremely positive revenues."
Perhaps part of the problem for Defendants, as Judge Limbaugh put it, was that they "spend considerable time, not addressing the pleading standards but rather defending themselves against the allegations." Oops, guess that didn't work. At any rate, "the bottom line is that the plaintiffs have pleaded that during the Class Period, the defendants had in their possession (or could have easily obtained) facts which rendered their financial results materially false when first stated to the investing public, and given these facts, intentionally delayed recognition of these 'facts' in violation of GAAP, then intentionally delayed recognition of the GAAP violations in order to induce plaintiffs to continue investing in a 'profitable' enterprise."
Oh, as for E&Y, the Judge found that even "assuming GAAP and GAAS violation did occur, at best, all the plaintiffs have alleged is negligence."
You can read the In re Tripos decisions, issued on September 30, 2005, at 2005 U.S. Dist. LEXIS 22752 and 2005 U.S. Dist. LEXIS 22753.
Nugget: "Without a doubt the 'merits' of the allegations as presented can be argued fervently; however such a debate involves questions of fact that cannot render the complaint inadequate, lest the heightened pleading requirements of the Reform Act replace the function of a trial."