Sunday, April 23, 2006


There’s just no other way to say it. Plaintiffs got hammered by Judge Phyllis J. Hamilton (N.D. Cal.) in the Silicon Storage Technology securities class action. After dismissing them on scienter, falsity, Dura, and just about every other basis imaginable, Judge Hamilton served up this rosy prediction: "Notwithstanding the fact that the dismissal is with leave to amend, the court questions whether plaintiffs will be able to state a claim. The gravamen of plaintiffs' complaint as presented in the CAC is that SST mismanaged the valuation of its inventory, and then failed to disclose that mismanagement. The allegation that defendants should have written down the inventory earlier than they did, or should have disclosed that SST's valuation system was ‘arbitrary,’ is essentially a claim that there were material deficiencies in SST's inventory control procedures. Generally speaking, incidents of fiduciary misconduct and internal mismanagement are not by themselves sufficient to trigger liability under the Exchange Act."

Of course, the last time we reported on Judge Hamilton, she was being partially reversed up at the Ninth Circuit, so it should be interesting to see what happens next. If anyone knows what Plaintiffs plan to do, please click the Comment below and tell the rest of us.

You can read In re Silicon Storage Technology, issued March 10, 2006, at 2006 U.S. Dist. LEXIS 14790.

Nugget: "The CAC alleges that the overvaluation of inventory and later disclosure of the lack of internal controls that led to the overvaluation caused a 22.5% decline in the price of SST's stock price. The court finds that the allegations in the CAC do meet the requirements of Dura."

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