Sunday, March 12, 2006

One Last Chance

Looks like Plaintiffs haven’t fared to well in the REMEC, Inc. securities class action, as Judge Jeffrey T. Miller (S.D. Cal.) has granted Defendants’ motions to dismiss entirely. In focusing in on the scienter allegations, Judge Miller commented that “one distinguishing characteristic of a strong showing of scienter is that it highlights a mental state embracing a strong intent to deceive, manipulate, or defraud, and serves to separate optimistic statements and or negligent acts from fraudulent ones. Plaintiff's argument in support of scienter is one based primarily on their executive positions within the Company.” “Plaintiff further alleges that Defendant Ragland bullied the sales staff and pressured them into providing sales numbers that met with his sales forecasts.” But these allegations didn’t work, as Judge Miller concluded that “Plaintiff reaches too far,” and “while these allegations move down the scienter path, they fail to distinguish what is non-actionable bullish conduct from fraudulent or reckless conduct.”

But all may not be lost. Judge Miller also held that “in light of the heightened pleading standards, the drafting of a cognizable complaint can be a matter of trial and error.” So, “because the court cannot conclude that there are no circumstances under which Plaintiff can state a claim, the court grants Plaintiff one last opportunity to state a claim that complies with the PSLRA.”

You can read In re Remec, issued February 14, 2006, at 2006 U.S. Dist. LEXIS 8657.

Nugget: “While the allegations set forth in the SAC are more prolix and repetitive than the two earlier attempts to state a claim, they similarly lack actionable substance. This is particularly true where Remec made full disclosure of its declining gross profit margins throughout this period of time in its SEC filings and public statements. Plaintiff must go beyond mere characterization and allege specific facts showing that Defendants possessed the requisite state of mind.”

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