Maguire Financial, LP v. Powersecure International, Inc., 876 F.3d 541

Background

PowerSecure, an energy-services company, announced a $49 million three‑year "renewal and expansion" utility infrastructure (UI) award from a large investor‑owned utility (FP&L) on June 6 and August 7, 2013; CEO Sidney Hinton made the August 7 analyst statement.
FP&L’s contract historically contributed ~4.1% of PowerSecure’s total revenue; the new contract ultimately required operations in a different geography (Ft. Myers) and increased costs, contributing to a large loss reported May 7, 2014 and a >60% stock drop.
Plaintiffs (consolidated under lead plaintiff Maguire Financial) alleged Hinton’s August 7 statement was false/misleading because the award was not a true ‘‘renewal’’ for West Palm Beach but a different, less profitable Ft. Myers contract, and asserted scienter based on Hinton’s position, motives, and insider sales.
The district court dismissed the consolidated complaint for failure to plead scienter with particularity under the PSLRA; plaintiffs amended and re-pleaded only the August 7 statement, and the district court again dismissed.
The Fourth Circuit affirmed, holding plaintiffs failed to plead a strong inference of intent to deceive or severe recklessness sufficient for § 10(b)/Rule 10b-5 liability.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether an inference that Hinton knew his statement was false suffices to plead scienter	Hinton, as experienced CEO, must have known the FP&L contract was not a renewal and therefore acted with scienter	Knowledge of falsity is distinct from intent to deceive; mere awareness of inaccuracy does not show intent or severe recklessness	No — knowledge that a statement was false does not by itself satisfy the PSLRA scienter requirement; plaintiffs may not stack inferences to supply scienter
Whether the amended complaint’s aggregate facts (statement context, company size, role, subsequent loss) create a strong inference of scienter	The totality of allegations (Hinton’s role, the contract’s importance, later losses) support an inference of intentional or severely reckless misconduct	Context shows ambiguity of the term “renewal and expansion”; no facts show Hinton knew the contract would be less profitable or intended to mislead	No — viewed holistically, allegations are not cogent and compelling nor as strong as plausible nonculpable explanations
Whether insider stock sales and transfers support an inference of scienter	The timing and proceeds from stock sales (PowerSecure sale and Hinton sales/transfers) show motive to inflate stock and cash out	Transactions were not unusual: company sale at market, Hinton did not sell at peak, and transfers were divorce‑related; no unusual/suspicious pattern	No — insider transactions were not sufficiently unusual or suspicious to supply a strong inference of scienter

Key Cases Cited

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (pleading standard: evaluate all allegations and competing inferences to decide whether a ‘strong’ inference of scienter exists)
Stoneridge Inv. Partners v. Sci.-Atlanta, Inc., 552 U.S. 148 (2008) (elements required for § 10(b) private action)
Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d 172 (4th Cir. 2009) (de novo review of dismissal; scienter pleading guidance)
Pub. Emps.' Ret. Ass'n of Colo. v. Deloitte & Touche LLP, 551 F.3d 305 (4th Cir. 2009) (Rule 9(b) and PSLRA purposes in securities pleading)
Teachers' Ret. Sys. of La. v. Hunter, 477 F.3d 162 (4th Cir. 2007) (PSLRA context and insider trading inference guidance)
Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874 (4th Cir. 2014) (scienter requires intent to deceive or severe recklessness; pleading standards)
Ottmann v. Hanger Orthopedic Group, Inc., 353 F.3d 338 (4th Cir. 2003) (definition of severe recklessness and insufficiency of generalized motive)
Longman v. Food Lion, Inc., 197 F.3d 675 (4th Cir. 1999) (distinguishing material misstatement inquiry from scienter analysis)