*4 Before ALDISERT DAVIS and complaint The contains the following PARKER, Judges. Circuit chronology of events and re- garding scienter. The alleges DAVIS,
W. EUGENE Circuit Judge: that in Hughes’ Baker revenues and plaintiffs appeal The from a earnings dismissal suffering. growth Years of 12(b)(6) under F.R.C.P. of their through securities mergers acquisitions and had left 10(b) 20(a) class action §§ fraud under Hughes’ accounting Baker systems dis- Judge, Circuit, Appeals Circuit U.S. Court of for the by designation. Third sitting that SAP was Hughes management accounting system unified no array, with improved re- significantly produce track to internal controls. proper and a lack Finley day, next defendant INTEQ turns. The in the problems.were primary The 21,574 Hughes Baker stock pro- shares of division, which sold located Venezuela Finley largely was per share. company rev- 20% of approximately $30.88 duced implementation of SAP. responsible for the Hughes initi- During Baker enues. later, Finley appointed was purpose of Two weeks Project Renaissance. ated presi- senior vice chief financial officer and and streamline to cut costs project was of finance and administration. project was dent systems. The internal control system information built around a new 21, 1999, former senior vice May On unify all designed called SAP which chief financial officer as well president systems management accounting and data resigned. the controller company. at the pursue left “to that these officials stated News Oxigram Platt’s in the im- other interests.” encountered Problems were left because of cost reported that the CFO system which plementation of new associat- operations glitches kept quiet so as not overruns allegedly defendants *5 resigna- The ed with the SAP conversion. compensation jeopardize their incentive in the investment million tions raised concerns of a or the success scheduled $200 day the same Merrill community. Period On During the Class offering. debt Lynch report a favorable on Baker inadequate and un- issued controls were internal man- Hughes on conversations with repeatedly based but the defendants reliable report resigna- noted the agement. in- The adequacy of the touted the ac- assured that there are “no lack of internal con- tions but ternal controls.. The counting company. issues” at the Baker Hughes to issue false trols Baker caused $31,125 per Hughes price rose to reports through- financial stock misleading and 1999, In June Schroder & Co. is- Based on the com- share. the Class Period. out meet- report another favorable after financial results and the sued pany’s reported ings defendant Lukens. Baker implementation of with apparent success per share to SAP, Hughes price rose price Hughes’ of Baker stock $1 1999, 27, September Baker Period and On throughout the Class increased $34.5625. registration for the future ratings of filed shelf analysts upgraded their equity securities to- issuance debt stock. plaintiffs taling billion dollars. The one 1999, compa- in example, For March Baker to raise claim that it was critical for Form 10-K with the SEC. ny filed its 1998 charges to cover fixed that could capital from the de- report The included a letter by earnings. covered be company that indicated that the fendants brought to system alleged deceptions inter- place in an extensive had December, fight beginning in 1999. On prevent material errors or nal controls 1999, 1, 1999, Hughes Baker an- reports. May in the December irregularities quarter 4th first nounced that results for the Hughes Baker announced favorable company poor would be and the would price results and the stock rose quarter 30,1998 charge to $29,785 pre-tax to record a million per April from share on $130 3, equipment due to dispose Also in of assets and per May share on $31.83 Co., conditions. On December report Inc. adverse market May, Schroder & issued 8, 1999, exis- company announced the raising rating Hughes its for Baker accounting irregularities at IN- Baker tence of on a conversation with reliance TEQ, subsidiaries, major one its that material. Without the benefit of the Zo- adversely decision, would affect the company’s nagen fi- discussed later nancial opinion, statements million the district court analyzed $40 $50 case pre tax. The law from previ- canceled the this and other circuits and con- cluded, ously properly announced note that a offering. On De- inference of scienter 9, 1999, cember not raised Hughes plaintiff Baker where a stock merely alleges facts of a per closed defendants’ During share. mo- $19.25 tive and opportunity to Class commit fraud. the stock high Period traded as as Rather, plead must specific per share. $36.125 facts constituting strong circumstantial ev- 16, 1999, On December president idence of conscious misbehavior or reck- INTEQ resigned. 24, January 2000, On lessness and motive opportunity may general the company’s resigned. counsel be considered as a factor determining 31, 2000, January On an- whether a strong inference has been nounced that it had fired Luk- defendant raised. from position ens his Chairman The district court proceeded analyze Chief executive officer. day, Also on that the three claims raised plaintiffs: the company announced that the head of (1) the defendants had the motive and the company’s Western Geophysical, Bak- opportunity to commit fraud based INTEQ er Atlas and resigned. divisions need to raise capital, compensa- incentive February On company an- tion contingent on the imple- successful nounced that it would previously restate mentation of SAP and Finley’s insider filed reports financial for periods dating *6 (2) sales; stock the engaged, defendants back to December 1997. The restate- conscious misbehavior or were reckless as- profit million, ment reduced by $31 $24.2 to their public representations because of million which INTEQ. was related to Finley Lukens and were intimately famil- The related to writeoffs uncollectible ac- iar with the company’s inadequate internal receivable, counts inventory write downs (3) controls, and the defendants violated and employee unrecorded compensation. generally accepted accounting principles. More details regarding the writeoffs The district court concluded that the “to- disclosed on March 2000 when Baker tality of the Plaintiffs’ facts failed to has Hughes its filed 1999 10-K. The report raise a strong inference of scienter.” The noted that the pri- misstatements “were court say went on to although that the marily the result of noncompliance with facts were insufficient in the it aggregate, the Company’s accounting operating and was not error for the court compart- to procedures that noncompliance such allegations mentalize the “wipe the primarily INTEQ’s isolated to opera- slate clean considering compo- after each tions in 10, 2000, Venezuela.” On April nent.” The court accordingly district dis- filed quarterly re- amended 10(b) missed plaintiffs the and 10b-5 ports for 1999. plaintiffs claims. Because the failed to The District Court’s Decision raise a strong scienter, inference of it de- clined to materiality. reach the issue of
The defendants filed a to motion dismiss Although not sought by the parties, the the case grounds on plaintiffs the district court further held that of dismissal failed to adequately allege particularized 10(b) required and 10b-5. claims dis- facts as to defendants’ scienter and that 20(a) of missal claim. plaintiffs faded to the al- show leged misleading public statements were appeal. The and, re- misleading, allegation if an
II. or omission is garding the statement a district reviews This Court belief, com- information and made on 12(b)(6) Rule de under dismissal court’s particularity all plaint shall state with so, accept the facts doing we will novo. that belief is formed.6 upon facts which as true and con complaint in the court’s recent decision This fa light in the most strue the Zonagen Inc. sets the stan Nathenson v. plaintiffs.2 to the vorable after the enact pleading required of dard 10(b) § of a claim-under To state case, That which of the PSLRA.7 ment Act, plaintiff must show: Exchange a circuit, applied the PSLRA this first (2) “(1) a misstatement or omission a “in to survive a motion to held that order (4) (3) made with scienter material fact 10(b)/ dismiss, a plaintiff alleging a section (5) proxi plaintiff relied which plead specific now Rule claim must 10b-5 scienter, injury.”3 mately caused his ‘strong rise to a inference’ giving facts 10(b) § claim element of a or state of mind As it did before the enactment scienter.”8 intent embracing is a “mental state PSLRA, recklessness can severe A deceive, manipulate, or defraud.”4 prove secu supply required the scienter subject to both Federal § claim is 10b-5 “lim fraud.9 recklessness is rities Severe 9(b)’s requirement Rule of Procedure Civil omis highly unreasonable ited to those pled particularity” fraud be “with misrepresentations or involve sions requirements requirements of neg merely simple or even inexcusable Litigation Reform the Private Securities departure from ligence, but extreme “PSLRA”). PSLRA, (the Under Act care, ordinary and that the standard allege scienter: danger misleading buyers or present shall, act respect with is either known to the defen sellers which chap- alleged to violate or omission dant or is so obvious that the defendant ter', particularity giving facts state with Allega aware of it.”10 must have been that the defen- rise to standing opportunity, tions of motive and *7 required state of dant acted with the alone, longer plead are no sufficient mind.5 scienter, although ap strong inference of addition, In oppor and propriate allegations of motive allegations of tunity may each enhance other complaint specify shall state-
the
evidence can
misleading,
scienter.11 Circumstantial
alleged to have been
ment
of scienter.12
support
strong
inference
why
reasons
the statement
the reason or
Inc.,
(5th Cir.2001).
Zonagen
400
7.
3.
Cir.1993)
(5th
Cyrak
(quoting
v. Lem-
520-21
Id. at 408-409.
9.
on,
320,
(5th Cir.1990)).
408, citing
Broad v. Rockwell Inter
Id.
10.
185,
Hochfelder,
v.
425 U.S.
4. Ernst & Ernst
929,
(5th
Corp., 642 F.2d
961-62
national
1375,
S.Ct.
6. Id. Id. at 410. that the has
Zonagen strong also establishes effect facts failed to raise a inference minimum, incorporates “at a of scienter.” The the PSLRA district court’s clear pleading fraud under Fed. it allega- the standard statement considered the 9(b).”13 interprets This circuit in aggregate, R.Civ.P. tions insufficient the al- 9(b) plaintiff the strictly, requiring though analysis, Rule without is difficult for us specify the statements contended to be to contradict. “to We need not do so as we fraudulent, conclude, identify speaker, state independent based on our re- view, the statements were when where that the taken as a whole made, explain why sufficiently plead the statements fails to scienter and agree were fraudulent.”14 with the result by reached the dis- trict court. Finally, Zonagen suggests that the isolation, should not read in allegations be IV. together taken as a whole to see if but necessary they raise the turn analysis We now to our analyzing of scienter. whether plaintiffs’ complaint. The false and com-, scienter, complaint adequately alleged the misleading alleged statements in the in Zonagen negatively court reacted to the plaint relate to Baker Hughes’ internal district court’s consideration certain accounting and financial Specifi controls. appropriate statements isolation.15 The Period, cally, during the plain Class Zonagen under is to consider analysis, allege tiffs the defendants issued all facts and circumstances “taken whether positive representations investing to the together” support nec are sufficient community that disclosures essary strong inference of scienter reports financial suffi plaintiffs.16 part reasonably cient to make them accurate. Plaintiffs on statements focus defendants
III. resignation made the wake of the officers, complain top first that the district financial two there were by failing analyze court erred accounting company. their “no issues” at allegations totality scienter based on the contend that these state required of the circumstances ments were false when made as revealed by Zonagen. in The district court stated statements issued be opinion ginning They its that it was not error for the in December 1999. further compartmentalize court to contend that the defendants knew the “wipe considering severely the slate clean after statements were false or were *8 component,” citing making each Coates v. Heart reckless in them on the based Communications, Inc., First, following land Wireless 55 circumstantial evidence. (N.D.Tex.1999)(“C'oaies F.Supp.2d the individual defendants were senior lev IF’). However, conclusion, in Hughes its the dis el executives of Baker who were intimately trict court also stated that the facts the familiar with the inner work ings company, including inade were insufficient when viewed of the the aggregate. quacies in the district court con of internal Both al The its controls. “totality legedly daily, weekly cluded that of the Plaintiffs’ received unidentified Id. at at 412. 15. Id. 424. 13. Id. Id. at 425.
14.
16.
allegations re
plaintiffs’
ap-
The
reports
that
financial
monthly
reports are
non-specific
finan-
internal
company’s
garding
true
of the
prized them
influ-
power
unsupported general
An
inadequate.
had the
also
cial status
issue
to
of confidential
ence
cause
claim about the existence
to
knew
The defendants
false- statements.
that reveal information
corporate reports
being imple-
program
SAP
that the
accounts is insuffi
contrary
reported
to
lacked a
company
mented because
to dismiss.18
a motion
cient
to survive
system and
accounting
single uniform
corroborating
must have
allegations
Such
company’s internal
knew that
thus
allegedly
contents of
regarding the
details
Accounting
cohesiveness.
lacked
controls
recipie
authors and
contrary reports, their
IN-
mainly at
discovered
irregularities
Also,
in
publication of
the mere
nts.19
of several
TEQ
restatement
necessitated
to
accounting figures or failure
accurate
restate-
reports. The
previously issued
more,
GAAP,
does not es
follow
without
stated to be
in 2000 was
ment announced
party must know
scienter. The
tablish
the com-
noncompliance
of
with
the result
materially false infor
publishing
it is
that
operating proce-
accounting and
pany’s
mation,
severely
or
be
reckless
must
Second,
violations
the defendants’
dures.
plain
The
information.20
publishing such
accounting princi-
accepted
generally
specific
internal or exter
point
tiffs
no
(“GAAP”)
other
in combination with
ples
time of the
report
nal
available
strong
inference
allegations raise
contra
alleged
that would
misstatements
Third,
of the de-
allegations
scienter.
dict them.
opportunity to com-
motive and
fendants’
n
example
type
As an
mit
inference
fraud enhance
dismiss,
a motion to
see No-
'in-
that survive
allegations of motive
scienter. The
In
com-
capital,
v. Kasaks.21
that -case the
to raise additional
vak
clude the need
com-
protect
alleged
their incentive
that
the defendants knew
plaint
a desire
inventory
and insider stock
pensation,
sales.
had serious
they sought
disguise
problems that
and other
on case law
Based
up
The defen-
adopting a cover
scheme.
circuits,
allegations fail to reach the
these
deliberately
intentionally and
dants acted
point
to no
required standard.
artificially
finan-
inflate
about
allegations that the defendants knew
ways
violated the com-
cial results in
only problems,
control
the internal
complaint in
pany’s
policies;
internal
lack
known or that their
they
have
should
“dis-
Novak
the defendants
corporate po-
their
knowledge
based on
inventory
to mark down
cussed
need
A
demonstrates
sitions
recklessness.
refused to do so because
would
but
on the
pleading
may
of scienter
not rest
pros-
financial
damage
Company’s
that defendants must have been
the Novak
pects.”22 Further
defendants
on their
aware of the misstatement based
management prac-
inventory
company.17
approved
positions within the
King Corp., 180 F.3d
Litig.,
20 Fine v.
Solar
Corp. Sec.
.
American
re Advanta
(3d Cir.1999).
(5th Cir.1990).
F.2d 290
*9
Group
Emergency
18.
Leandro
Medical
San
(2d Cir.2000).
21.
tice violated the own mark- should have anticipated finding problem policy as it in compa- down was stated or assumed that financial reported data ny’s public filings.23 Also, despite their system under old was inaccurate. canWe knowledge that inventory practice they just easily as infer that implementation adopted in of stated company pol- violation of SAP was driven a need to better icy was the growth reason for in inventory, coordinate the accounting systems place the defendants in gave expla- Novak false companies various Hughes had growth.24 nations for its We have no such '- merged with' over the A years. planned allegations of actual knowledge or inten- improvement or upgrade does not mean tional or deliberate behavior this case. prior system necessarily was pro Rather the accounting prob- nature ducing bad data. A perfectly reasonable lems Hughes at Baker lead to the explanation for implementing Project Re restatement, i.e. re-, uncollectible accounts naissance was to improve efficiency and ceivable, inventory write downs and unre- lower costs. In discussing the standard employee corded compensation, easily can conduct, for reckless the court in Novak from negligence, arise oversight simple or noted company officials should not be mismanagement, none of which rise to the held responsible for failure to foresee fu- necessary standard support a securities Also, ture events. long public as state- fraud action. ments reasonably are consistent with rea- This case is more like Melder v. Morr data, sonably available corporate officials Melder, is.25 need present not overly gloomy or cau- “the true adverse facts about UR- picture tious of the company’s per- current CARCO’s financial condition ... were formance.27 The cases relied on known to or recklessly disregarded by de plaintiffs in regard involve actual “[bjecause fendants” and of their board knowledge of the falsity published membership their executive and and/or reports, which is not alleged in this case. managerial positions URCARCO, with de SEC, See Meadows v. 119 F.3d fendants ... or had knew access to infor (5th Cir.1997)(Meadows told investors that mation concerning non-public the adverse certain companies were low-risk invest information about URCARCO’s fi adverse ments that were virtually yield nancial certain to outlook.”26 In that case this court high plaintiffs disclosing concluded that return without that he plead failed to was adequately. scienter an officer and director of one of the com panies, temporarily had been denied after- case, In our point- have not books; hours access to Companies’ he any particular reports ed or informa- had never conducted a background investi tion—available to defendants before the gation into the principals, any of their announced financial restatements —that assertions, Companies! or the purported contrary are to the restatements. therefore, successes and that fact that Baker he had no overhauling accounting system its basis for Project via recommending Renais- the investments. program sance the SAP does com- Further Meadows was principal aware one mand an inference company officials of recently had accused been 23. Id. 26. Id. at 1103.
24. Id. at 311-312. Novak, 27. (5th Cir.1994).
25.
434 aware that a V. misappropriation; he was
of sepa maintain they- recommendation that addition, ac although we In drilling pro each rate bank accounts for knowledge allegations motive and that of followed; and not he had being gram may fraud opportunity to commit enhance Companies by cer forced out of the been scienter, an the .motives al inference paid him be principals, also to tain who leged types are not the the Companies’ the financial situa silent about support motive that Amoskeag tion.); Bank Serabian v. plaintiffs the allege scienter. The (1st
Shares,
365
F.3d
to
Cir.1994)(General
defendants were motivated
commit
statement
bank’s
existing
oper
capital,
loan
function was not
fraud
the need to raise
review
timely
failures
follow
ating
and of other
to
compensa
desire for
incentive
enhanced
support
policy
not
conclusion
internal
does
tion and the desire to sell stock at inflated
loans
that defendants knew
were.deterio
prices.
court has held that similar
This
However,
rating
creditworthiness.
support
insufficient
to
were
that loss reserves were
bank’s statement
In
inference of scienter.
Melder v. URC
adequate,
and cautious direct
conservative
ARGO,
claimed that
contrary,
internal
ly
reports
to identified
in a
to
engaged
conspiracy
defendants
claim.).
to
was sufficient
state
fraud in
commit securities
order to inflate
resignation
that the
imply
price
stock to allow
accounting
from the
key
officials
offerings,
protect
for successful stock
to
May
1999 should
served
a warn-
have
positions
their executive
and to enhance
de-
ing
problems
existed within that
personal
holdings
the value of their
stock
defendants were
partment
that .the
in the company.29
allegation
Absent an
investigate, especial-
failing
reckless for
profited
that the
in
defendants
from the
their
ly given
statement
there were
offerings,
flated
or the
such
stock value
accounting
company.
“no
at
issues”
allegations fail. Similar claims were re
However,
complaint points
in the
nothing
jected in Tuchman v. DSC Communications
any
that would indicate
information
that Corp
Tuchman,
this court stat
.30
officials, their
resigning
replace-
either
ed:
any
ments or other defendants knew of
compensation
hardly
Incentive
can
be
ir-
accounting
or that such
irregularities
an allegation
basis on which
of fraud
regularities were the reason
their res-
predicated.
level,
practical
On a
ignations. According
complaint,
to the
true,
opposite
executives of vir-
that these officials
reported
tually every corporation in the United
resigned
“pursue other
interests.”
subject
allega-
States would
to fraud
be.
reported
Oilgram News
Platt’s
tions.
It
not follow
does
that because
resigned
of cost
CFO
because
overruns
components
executives have
of their
operational glitches
associated with
compensation keyed
performance,
one
rea-
implementation
SAP. Neither
any
implications.28
has
scienter
can infer fraudulent intent.31
son
1097, 1102, (5th Cir.1994).
Paymentech,
v.
Inc.
29. 28.Branca
Transfer
F.3d
[2000
¶ 90,911,
(CCH)
Rep.
at
Binder] Fed.Sec. L.
(5th
93,855-56 (N.D.
2000)
Cir.1994).
(Scienter
Feb. 8
Tex.
30.
may
resignation
be
inferred from
of com-
reasons.”)
pany
personal
officials "for
Id.
1068-69.
*11
sales, only-
consequences
stock
sions.
As to the
insider
only
portion
sold
of his Hughes’s growth,
one defendant
accounting
from an
company. Finley
shares
Defendants,
exercised
standpoint,
was understood
92,405
21,574
options
stock
and sold
argue.
they
Plaintiffs
That
continued to
34,980
Only
of his other
shares.
sold none
represent
accu-
financials
amounts or at
trading
suspicious
insider
anyway
rate
evidences
reckless-
severe
probative of scienter.32
suspicious times is
ness.
make no
these
Plaintiffs
Allegations
foregoing,
if proper-
like
prior trading
out of line with
sales are
detailed,
ly
are sufficient to state a cause
or at times calculated to maxim-
practices
compa-
of action for. securities fraud. A
Further,
personal profit.33
even unusu-
ize
ny’s public filings are
medium through
give
al
one insider do not
rise to a
sales
perfor-
which
monitor the
stockholders
strong inference of
when other
scienter
management.
mance of directors' and
not sell
or all of their
defendants do
some
wrongfully
When
conduit is
obscured
during
shares
the Class Period.34
only
they
owners lose the
reliable means
VI.
protecting
have
capital.
for
hard-earned
summary,
complete
In
on our
re-
based
History
consequences
reminds us of the
complaint,
plaintiffs’
view of the
we con-
publicly-
when the financial statements of
plead
adequately
clude that it
facts
fails
companies
held
do not
reality.
accord with
that raise a
inference of scienter.
Indeed,
protect against
it was to
them that
correctly
court
Accordingly, the district
our nation’s securities laws were enacted.
AFFIRMED.
plaintiffs’
dismissed
action.
time,
pay
At the same
we must
heed to
(cid:127)
different
set
PARKER,
consequences
Judge,
ROBERT M.
Circuit
—those
brought
by the
prosecu-
about
overzealous
concurring:
specious
tion of
securities fraud actions.
terms,
general
allege
Plaintiffs
Congress,
passing
the Private Securities
fraudulently misrepresented
Defendants
Litigation
pains
Act of
took
Reform
Hughes’s
of Baker
inter-
the effectiveness
findings
deter such strike suits.
Its
controls,
Plaintiffs,
accounting
nal
and that
history suggest that
cost
legislative
having
representations,
relied on these
against
unduly im-
protecting
fraud was
damaged
when the
later
pairing
operation of
the efficient
lawful
state of its financial af-
revealed
true
Today,
applying-
when
businesses.
They
Hughes
fairs.
contend that as Baker
PSLRA,
policy
keep
courts must
con-
merged
acquired
or
other entities the ac-
sideration foremost in mind. But we must
curacy
company-wide accounting prac-
recognize
Congress
left unaffect-
also
reporting
tices deteriorated. Methods for
right
ed shareholders’
to sue for recom-
earnings,
example,
asset values and
pense
they
when
are made the victims of
unit
differed
one business
to the next.
from
self-dealing and deceit. The PSLRA is a
allege
single,
lack of a
winnowing
mechanism for
out suits that
accounting practice caused Baker
coherent
It
requisite
specificity.
lack a
level of
that did not fair-
to issue numbers
management
represent
company’s disparate divi- not meant to let business
ly
Leandro,
(2d
Graphics,
Cir.
32.
In re Silicon
run
to the detriment
amuck
Nathenson,
78u-4(f)(l).
§
And in
U.S.C.
ers.
specifying a
Congress’s
that
we concluded
hand, I
at
view
to the case
respect
With
those
requirement for
heightened scienter
Ultimately, howev-
very
being
it as
close.
that it meant
provisions suggested
special
that Plain-
er,
majority conclude
I like the
of mind[ ]
“the reckless state
to leave alone
under
pass
not
muster
complaint
tiffs’
does
by the
uniformly
sufficient
federal
held
of the PSLRA.
stringent standards
(internal quota-
raised
Plaintiffs’ claim thiat Defendants’
statements to
analysts
certain investment
II.
that Baker Hughes had
“accounting
no
agree
I
complaint
in this case
issues” or “numbers issues” were fraudu-
give
fails to
strong
rise to a
inference of
lent.1 These
reported
statements were
scienter, although
question.
it is a close
day
Hughes’s
Baker
chief(cid:127) financial officer
true,
Taking
Plaintiffs’
as we
comptroller,
and- its
Eric Mattson and
required
PSLRA,
are
to do even under the
Harris,
James
suddenly resigned.
both
Nathenson,
see
267 F.3d at
the com-
complaint
The
analysts
shows that
were
plaint lacks the requisite
support
detail to
when
concerned
Mattson
Harris unex-
a strong
example,
inference. For
Plain- pectedly left.
Hughes’s
Baker
nebulous
allege
Project
tiffs
Renaissance was
explanation for their leaving
they
—that
initiated “after a
merger
decade of
“to pursue
wanted
other
likely
interests” —
acquisition activity[]
Company’s
left the
mollify
did little to
the situation. But
¶
accounting in disarray.” Compl.
41. Plaintiffs have failed explain how these
But little or no facts
support
are offered to
standing
events
alone support
this bald contention.
complaint only
discovery
inference
of accounting
specifically 'mentions
one'
with irregularities precipitated Mattson’s and
which Baker Hughes merged,
At-
Western
later,
leaving.
Harris’s
months
Several
company,
las. Even as to that
there is no report
Oilgram
in Platt’s
News attributed
detail
Hughes’s
about how its and Baker
departures
to cost overruns in the
accounting practices
Companies
differed.
implementation
Project
Renaissance.
required
are
to disclose1their methods qf No facts have
alleged that would
been
n
accounting. Presumably, comparing Bak-
Moreover,
explanation.
undermine this
er Hughes’s and
respec-
Western Atlas’s
assuming for the
faulty
moment that
ac-
reports
tive
would have
filings
enabled
counting practices were the reason Matt-
explain
Plaintiffs to
respective
left,
how the
son and Harris
Plaintiffs have failed
accounting practices
incompa-
each were
particular
to make
allegations about how
tible, thus resulting in the claimed-of dis-
problem
way
evidence of the
had made its
See,
question
1. Not before us
particular person
is
whether state-
e.g.,
are actionable.
analysts
third-party
ments to
are actionable.
St. Bd. Admin. v. Green
Florida
Finan
Tree
See,
Novak,
e.g.,
at 314-15. Also not
F.3d
(8th
Corp.,
cial
667-69
Cir.
allegedly
before us is whether
false statements
2001).
reported by analysts but not attributed to a
is
than absolute
“Indi-
better
argue
each
to Defendants.
daily,
majority goes
received
each
I likewise think the
vidual Defendants
rules.
monthly
reports
financial
“Further,
weekly[,] and
unusual
stating,
far in
even
too
financial status of
the true
apprise them of
give
rise to a
sales
one insider do
¶
Compl. 95. No back-
Hughes.”
other
strong inference of scienter when
contention,
given for this
up support
is
or all of their
defendants do not sell some
to infer that
It
be easier
however.
would
Period.” Id. at
during
shares
the Class
if,
reports
for ex-
they had received such
determining in advance which
Again,
information about
ample,
given
were
we
support an
of scienter
situations
they
reports,
when
generated
who
precepts Nath-
getting away
from the
reviewed,
responded
Defendants
how
Moreover,
such an inference
enson.
*14
See,
them,
e.g.,
re Scholastic
etc.
In
a
against
ought
defendant
not turn on
one
(2d
63, 70-72
Litig., 252 F.3d
.Corp. Sec.
prof-
likewise
finding that his co-defendant
Cir.2001).
this information
-having
Not
See,
illegal
trading.
e.g,
ited from
insider
say
it
whether Defen-
makes
difficult
Tree,
ence that brewing.”) problem
aware INC., USA, Plaintiff-
BAUHAUS
Appellant,
v. COPELAND, Regina Holmes
Lillie Defendants,
etc.; al., et Copeland, Regina as natu
Lillie Holmes guardian next friend of Resh
ral Holmes, Holmes; Reshan
minor, Defendants-Appellees.
No. 01-60343. Appeals, Court of
United States
Fifth Circuit.
May Rehearing En Banc
Rehearing and 21, 2002.*
Denied June (argued), H. Lawrence John
Thomas Russell, Russell, & Morris Lawrence Russell, Jr., TN, Alcorn Memphis, Glover Stennis, Watkins, Ludlam, & Jack- Winter son, MS, Plaintiff-Appellant. Roy Parker Roy (argued), Parker O. O. MS, Associates, Tupelo, for Defendants- & Appellees.
* hearing. grant Petition Re- Judge Wiener would