Monday, February 27, 2006

Ninth Circuit Centers on Scienter

Say the headline above five times fast (with no mistake) to win a free year's subscription to the Nugget. So let's see here, looks like the moment you've been waiting for has arrived. Yes, it's true, a Panel of the Ninth Circuit has listened to Plaintiffs’ position that Judge Alicemarie H. Stotler’s (C.D. Cal.) dismissal of the Aspeon securities class action was wrong. But the listening is done (unless you want to listen to the oral argument below), and it’s time to see what they said. Are you ready? A bit nervous? That’s understandable, so just take a deep breath and relax. It’ll all be over soon, don’t worry.

Well, as you now know, the entire focus of the two page decision targets scienter, with the Panel holding that “the complaint here fails to make specific allegations of Defendants' direct involvement, and instead relies on their involvement in the transactions and pre-existing knowledge of the proper way to recognize revenue.” They also held that “the issuance of restatements is not an admission that the Defendants knew the reports were false when made,” and even “when restatements have been considered evidence of scienter, the restatements were of considerably greater magnitude than those here.” That’s because “the restatements here occurred over three quarters, shuffled funds amongst these quarters such that revenue for the December 1999 quarter actually increased, and, in the end, only demonstrated a revenue reduction of 1.57%.” So, these “facts do not give rise to a strong inference the original statements were issued with deliberate or conscious recklessness.”

You already guessed this too, didn’t you? Dismissal affirmed.

So, Plaintiffs pretty much got creamed in this one (you can listen to the oral argument here by typing Case # 04-55651 in the search box), but if it’s any solace to other Plaintiffs, Defendants in other cases won’t be able to use this decision as precendential value as it’s been tagged by the Panel as unpublished.

You can read In re Aspeon, issued February 23, 2006, at 2006 U.S. App. LEXIS 4673.

Nugget: “The complaint does not detail the way in which the information was inaccurate or what the alleged obstacles were.”

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