Sarbanes Certifications Back to Bite Execs

Think those Sarbanes Oxley certifications your CEO and CFO signed won’t add to Plaintiffs’ scienter allegations? Well, think again, at least if you are the former executives in the Lattice Semiconductor securities class action. You see, the execs argued that execution of the "certifications does not raise a strong inference" of scienter, because they "are required of every CEO and CFO of publicly traded companies, without exception."

But Judge Ann Aiken (D. Or.), in finding this argument "unpersuasive," concluded that the "certifications give rise to an inference of scienter because they provide evidence either that defendants knew about the improper journal entries and unreported sales credits that led to the over-reporting of revenues (because of the internal controls they said existed) or, alternatively, knew that the controls they attested to were inadequate (because [the Controller] had made unauthorized or improper entries that overrode the internal controls)."

Hey, can't blame them for trying, right?

You can read In re Lattice Semiconductor, issued January 3, 2006, at 2006 U.S. Dist. LEXIS 262.

Nugget: "The Sarbanes-Oxley certifications, in combination with plaintiffs' allegations of regular finance meetings, extensive access to databases, periodic reports and special reports, and the allegations that they were micromanagers, are sufficient to create a strong inference of actual knowledge or of deliberate recklessness."