PSLRA Class Action Defense Cases–In re Charter Communications: Eighth Circuit Holds As Matter Of First Impression That District Court Failure To Include In Judgment Findings Required By Rule 11(b) Does Not Require Remand

Following Dismissal of Securities Fraud Class Action, District Court Failure to Include Rule 11(b) Statutory Findings in Judgment may be Decided by Court of Appeal Eighth Circuit Holds Plaintiff filed a putative securities fraud class action against various defendants, including Scientific-Atlanta and Motorola. The district court dismissed the class action claims against Scientific-Atlanta and Motorola and entered a separate, final judgment under Rule 54(b). Plaintiff appealed, and the Eighth Circuit affirmed.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

PSLRA Class Action Defense Cases–Grillo v. Tempur-Pedic: Kentucky Federal Court Dismisses Securities Class Action Complaint With Prejudice Finding Class Action Allegations Failed To Plead Scienter With Specificity Required Under PSLRA

Class Action Alleging Securities Violations Failed to Plead “Strong Inference of Scienter” as Required by the Private Securities Litigation Reform Act (PSLRA) Warranting Dismissal of Class Action With Prejudice Kentucky Federal Court Holds

Plaintiffs filed a class action lawsuit against Tempur-Pedic and others alleging securities laws violations arising out of allegedly false and misleading statements regarding the company’s financial situation as part of a scheme to drive up the stock price thereby allowing insiders “to sell more than $246 million worth of stock at an inflated price.” Grillo v. Tempur-Pedic Int’l, Inc., ___ F.Supp.2d ___ (E.D. Ky. March 28, 2008) [Slip Opn, at 1-2]. In essence, the class action alleged that after Tempur-Pedic announced a 6% price increase in its mattress lines in January 2005, it “caused a frenzy of retailers to stock up on their inventory needs before the price increase occurred.” _Id._, at 5. According to plaintiffs, this caused a “huge amount” of the company’s revenue to be “pulled forward,” but Tempur-Pedic denied this when asked by Goldman Sachs, _id._ The company reported record earnings and represented to the public that its growth could be “sustained,” when (according to the class action allegations) the company’s retail sales actually were “volatile and irregular.” _Id._, at 5-6. Plaintiffs’ class action complaint followed a September 19, 2005 press release that lowered guidance for the year, causing the stock to plummet 28% in a single day. _Id._, at 9. The complaint also detailed allegedly improper insider trading, _see id._, at 10-11. The class action alleged violations of Sections 10(b), 20(a) and 20A of the Securities and Exchange Act of 1934, and Rule 10b-5, _id._, at 2. Defense attorneys moved to dismiss the class action on the grounds that it failed to plead the specificity required under the Private Securities Litigation Reform Act (PSLRA). _Id._, at 2-3. The district court granted the defense motion and dismissed the class action complaint.

The federal court began with the now well known Supreme Court holding that, under the PSLRA, “‘a complaint will survive…only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.’” Grillo, at 17 (citation omitted). Plaintiffs’ mere allegation that defendants had access to internal financial reports and that those reports demonstrate the inaccuracy of the company’s financial representations was held to be inadequate, as they failed to provide any of those reports to the court or to “cite any of their specific details.” Id., at 18-19. Under the district court’s analysis, the allegations underlying the class action failed to meet the requisite level of scienter. For example, the mere fact that certain defendants held high positions within the company, or that they sold stock, were insufficient, as “[holding] high positions in the Company…is not enough to establish scienter,” id., at 19-20, and plaintiffs failed to demonstrate that the stock trades were “unusual or suspicious,” id., at 23-24. (The district court provided a detailed discussion of the stock trade issue. See id., at 24-27.) At bottom, the court concluded that the “strong inference” of scienter had not been shown.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

HP Class Action Defense Cases–Indiana Electrical Workers v. Dunn: California Federal Court Grants Defense Motion To Dismiss Class Action Challenging $21.4 Million Severance Package Hewlett-Packard Paid Former CEO Fiorina

Class Action Derivative Claims Challenging Severance Package Paid by HP to Former CEO Dismissed for Failure to Make Requisite Demand on Board and Failure to Establish Futility California Federal Court Holds

Plaintiffs filed a class action against Hewlett-Packard, its former chief executive officer, Carleton Fiorina, and various other individual defendants challenging the severance package HP paid Fiorina. Indiana Electrical Workers Pension Trust Fund v. Dunn, ___ F.Supp.2d ___ (N.D. Cal. March 28, 2008) [Slip Opn., at 1-2]. The class action complaint outlined Fiorina’s role in HP’s merger with Compaq, over board member Walter Hewlett’s vigorous opposition, and alleged that Fiorina and HP used knowingly false financial projections to secure approval of the merger. _Id._, at 2-3. The class action also alleged that after the merger was characterized as a failure, HP fired Fiorina and paid her more than $40 million in benefits, including a $21.4 million severance package that, plaintiffs allege, was aimed at “mak[ing] sure that Fiorina kept quiet about the Compaq merger debacle.” _Id._, at 3. The second amended class action complaint charges that Fiorina’s severance package were ‘far in excess” of “the express terms of the Company’s Severance Policies,” _id._ The gravamen of the complaint was that Fiorina termination was “involuntarily” and, accordingly, “she was not entitled to any accelerated vesting of payments under HP’s Long-Term Performance Cash (‘LTPC’) Program.” _Id._, at 3-4. Defense attorneys for HP and the individual defendants moved to dismiss the class action; the district court granted the motion.

The defense motion to dismiss the class action advanced two main arguments. First, defense attorneys argued that the class action complaint’s derivative claims failed because plaintiffs never made the requisite demand on HP’s board of directors. Dunn, at 8. The district court explained that “[a] shareholder seeking to vindicate the interests of a corporation through a derivative suit must first demand action from the corporation’s directors or plead with particularity the reasons why such demand would have been futile.” Id., at 8-9 (citing In re Silicon Graphics Inc. Securities Litig., 183 F.3d 970, 989-90 (9th Cir. 1999)). Because the laws of the state in which HP is incorporated govern whether it would be futile to make the requisite demand and because HP is incorporated in Delaware, the court analyzed futility under Delaware law. Id., at 9. Based on its detailed factual analysis, the district court rejected plaintiffs’ counter that making the requisite demand on the board would have been futile. See id., at 9-14. The district court also concluded that the business judgment rule insulates the board’s decision to pay Fiorina the $21 million severance. Id., at 14. The court explained at pages 14 and 15 that it was incumbent upon plaintiffs to “allege facts sufficient to rebut a presumption that the decision was a result of a valid exercise of business judgment.” Based on the federal court’s analysis, plaintiffs failed to rebut this presumption, see id., at 15-17, and failed to establish that the board’s acts were ultra vires, see id., at 17-21.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense Cases-Pfeiffer v. Himax: California Federal Court Denies Defense Motion To Transfer Securities Fraud Class Action To New York

Defendant in Securities Fraud Class Action Failed to Establish Grounds to Transfer Class Action to New York, Particularly in Light of Defendant’s Waiver in Deposit Agreement to Right to Challenge Venue California Federal Court Holds Plaintiffs filed a class action in California federal court against Himax Technologies alleging securities fraud in connection with the initial public offering of Himax stock; a related class action, entitled Oh v. Chan, CV 07-4891 DDP (AJWx), also has been filed, and a motion seeking “to certify a securities class action for substantially similar claims” is pending in that action.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

ERISA Class Action Defense Cases-In re Federal National Mortgage: District Of Columbia Federal Court Grants Motion To Certify Securities Class Action Against Fannie Mae and KPMG But Grants Defense Request To Limit Class Period

Federal Securities Class Action Satisfied Rule 23 Requirements for Class Action Treatment but Duration of Class Period must be Limited as Requested by Defense District of Columbia Federal Court Holds

Several federal securities class action lawsuits were filed against various defendants Federal National Mortgage Association (Fannie Mae) and its former accountant KPMG, as well as various officers and directors of Fannie Mae alleging that they “intentionally manipulated earnings and violated Generally Accepted Accounting Principles (‘GAAP’), causing losses to investors.” In re Federal Nat’l Mortgage Ass’n Securities, Derivative, & “ERISA” Litig., 247 F.R.D. 32, 33-34 (D.D.C. 2008) (footnote omitted). The class actions were consolidated, and the consolidated class action complaint alleged accounting discrepancies at Fannie Mae in violation of GAAP and inadequate internal controls, id., at 34-35. The class action cited to an SEC investigation and to the Paul Weiss report, each of which confirmed accounting problems at Fannie Mae. Id., at 35-36. The class action alleged that Fannie Mae was ordered to restate its financial statements, and that concerns with these financial reports caused the stock to drop dramatically. Id., at 35. Plaintiffs moved for certification of the litigation as a class action and for appointment of class counsel, id., at 33. Defense attorneys apparently did not oppose class certification per se, id., at 36, but rather objected to the proposed duration of the class period (April 2001 to September 2005) and the identity of the putative class members, id., at 33-34. The district court granted the motion in part.

In addressing whether to grant class action treatment, the district court noted that “[t]he requirements of Rule 23(a) are so clearly met in this case that the defendants raise no opposition to this requirement being satisfied.” In re Federal Nat’l Mortgage, at 37. Defense attorneys did oppose, however, the relevant class period: The parties (other than KPMG) agreed that the start date was April 17, 2001, but while plaintiff sought an end date of September 27, 2005, the defense (except KPMG) sought an end date of December 22, 2004. Id. The defense argued that after December 22, 2004, “it was unreasonable, as a matter of law, for any investor to rely on Fannie Mae’s financial statements as a basis to allege that they were a victim under a fraud on the market theory.” Id., at 37-38. The defense selected that date because Fannie Mae issued a corrective disclosure warning on December 22, 2004 that disavowed its earlier financial reports; accordingly, the defense argued that “any purchasers who acquired stock after December 22, 2004, cannot rely on that presumption because Fannie Mae’s corrective disclosure cured the fraud on the market and thus rebutted the presumption of reliance, leaving only individual issues of reliance to predominate thereafter.” Id., at 38. The district court agreed.

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PSLRA Class Action Defense Cases-In re H&R Block: Missouri Federal Court Dismisses Securities Class Action Against H&R Block Concluding Class Action Allegations Failed To Satisfy PSLRA’s Heightened Pleading Requirements

Defense Motion to Dismiss Securities Class Action Against H&R Block and Individual Defendants Granted because Class Action Complaint Failed to Meet Heightened Pleading Requirements Mandated by the Private Securities Litigation Reform Act of 1995 (PSLRA) Missouri Federal Court Holds

Plaintiffs filed a class action against H&R Block and various individual defendants alleging violations of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities Exchange Commission, and seeking derivative “controlling persons” liability under section 20(a) of the 1934 Act. In re H&R Block Securities Litig., ___ F.Supp.2d ___ (W.D. Mo. February 19, 2008) [Slip Opn., at 1]. The class action alleged that H&R Block failed to attribute its financial success to “deceptive consumer practices” which “thereby artificially inflating its reported earnings,” failed to properly account for its effective income tax rate thereby “requiring a restatement of reported financial results,” and failed to implement “a system of safeguards and procedural controls” to ensure that financial statements and reports were reliable rather than “materially overstated.” _Id._, at 2. Defense attorneys moved to dismiss the class action complaint; the district court granted the motion but granted leave to amend as to the restatement of financials claim if plaintiffs could plead with specificity “that the Company knew, not just that it had internal control weaknesses, but that it was releasing materially false financial information as a result.” _Id._, at 2-3. Plaintiffs filed an amended class action complaint, _id._, at 3, alleging that defendants “misled the Company’s public investors by disseminating a series of materially false and misleading statements concerning the Company’s revenues, earnings, profitability, and financial condition,” and defense attorneys again moved to dismiss the class action. _Id._, at 1-2. The district court granted the motion and dismissed the securities class action complaint.

Analyzing the allegations of the class action complaint under the heightened pleading requirements dictated by the Private Securities Litigation Reform Act of 1995 (PSLRA), In re H&R Block, at 4, the federal court turned first to the Section 10(b) claim. Defense attorneys claimed that the amended class action complaint failed to cure the deficiencies in the original class action complaint; specifically, it failed to “plead facts giving rise to a strong inference that the Defendants acted with scienter when accounting errors caused inaccurate financial statements to be released.” Id., at 4-5. Relying on the test enunciated by the Supreme Court in Tellabs, Inc. v. Makor Issues & Rights, Ltd., ___ U.S. ___, 127 S.Ct. 2499 (2007), a summary of which may be found here, the district court held that plaintiff’s “four confidential sources” were insufficient — not because the sources were unnamed, but because plaintiffs had failed to establish that the information from these sources was reliable, _id._, at 6 (citation omitted). The federal court also concluded that even if the information from the unnamed sources was reliable, the allegations failed to satisfy the PSLRA’s heightened pleading requirements because the company had issued warnings of possible problems with its financial statements and had conducted an investigation in conjunction with an independent auditor, thus undermining a claimed intent to deceive. _Id._, at 7-8. As the court summarized at page 9, “[T]he Court is left with statements by confidential informants suggesting that Defendants knew they had problems involving corporate tax accounting controls. The Company repeatedly disclosed the problems to investors beginning in July 2004. The Company continued to evaluate and work towards remedying the problems, including by hiring the help of an independent third-party. The culmination of the investigation led to a Restatement. Thus, Plaintiff has still not pled facts giving rise to a strong inference that Defendants acted with an intent to deceive the investing public by releasing incorrect financial statements.”

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense Cases-In re Tyco: New Hampshire Federal Court Approves Class Action Settlement And Awards Class Counsel Record $464 Million For Prosecuting Securities Fraud Class Action Lawsuit

Proposed $3.2 Billion Settlement Of Securities Fraud Class Action Fair, Reasonable and Adequate, and Request By Class Action Plaintiffs’ Counsel for $464 Million Fee Award Reasonable New Hampshire Federal Court Holds

Plaintiffs filed a securities fraud class action lawsuit against Tyco International, its former auditor, PricewaterhouseCoopers, and five individual defendants; the gravamen of the class action was that defendants “misrepresented the value of multiple companies that Tyco acquired and misreported Tyco’s own financial condition in ways that artificially inflated the value of Tyco stock,” thereby permitting the individual defendants “to reap enormous profits by looting the company through a combination of unreported bonuses, forgiven loans, excessive fees, and insider trading.” In re Tyco Int’l, Ltd., ___ F.Supp.2d ___, 2007 WL 4462593, *1 (D. N.H. December 19, 2007). The district court granted plaintiffs’ motion for class action treatment, and the parties eventually negotiated and sought district court approval of a proposed $3.2 billion settlement of the class action. _Id._ Specifically, the terms of the class action settlement requires that Tyco pay $2.975 billion in cash, plus interest, and that PricewaterhouseCoopers pay $225 million in cash, plus interest, _id._, at *5. The district court stated at page *5: “Tyco’s payment will be the largest cash payment ever made by a corporate defendant in the history of securities litigation. [PricewaterhouseCoopers’] payment will be the second-largest auditor settlement in securities class action history. In all, the proposed settlement is the third largest securities class action recovery in history, behind only Enron and WorldCom.” As part of the motion for approval of the class action settlement, plaintiffs’ lawyers sought an attorney fee award of 14.5% of the $3.2 billion settlement, _id._, at *1, together with almost $29 million in costs, _id._, at *14. The district court approved the class action settlement and awarded the attorney fees requested.

We do not here discuss the district court’s analysis of the proposed settlement, or its conclusion that the terms of the class action settlement were fair, reasonable and adequate. See Tyco, at *7-*11. We do note, however, that the court stated it would be “difficult to overstate the complexity of this case,” id., at *8, and that the case was “risky…for both sides,” id., at *9. The court further highlighted the expense involved, noting that more than 488,000 hours of attorney time had been devoted to prosecution of the class action, id., at *10. The court’s analysis and rejection of the various objections to the proposed settlement may be found at pages *11-*14. The attorney fee award bears mention because it represents the single largest attorney fee award in class action history.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Subprime Securities Law Class Action Defense Cases-Gold v. Morrice: California Federal Court Grants Motion To Dismiss Class Action Claims But Gives Plaintiffs Leave To File Amended Class Action Complaint

Securities Class Action Complaint Failed to Adequately Articulate Factual Bases for Claims Necessitating Dismissal but with Leave to Amend California Federal Court Holds

Various plaintiffs filed a class action lawsuit against New Century. and various officers and directors aris[ing] from the collapse of New Century Financial Corporation in the wake of the subprime mortgage crisis, and allegations of securities law violations that drastically reduced the value of stocked owned by shareholders. Gold v. Morrice, ___ F.Supp.2d ___ (C.D. Cal. January 31, 2008) [Slip Opn., at 1]. In September 2007, lead plaintiff (New York Teachers Retirement System) filed a consolidated class action complaint; defense attorneys moved to dismiss various class action claims, _id._ The class action was filed after New Centurys stock dropped 97% following several disclosures regarding errors in its previously reported financial statements, _id._, at 2. Specifically, the class action complaint alleged violations of Section 11 and Section 12(a) of the Securities Act, as well as securities fraud claims under Section 10(b) and Section 20(a) of the Exchange Act against the individually-named defendants, _id._ The district court granted the motion to dismiss but with leave to file an amended class action complaint.

In granting the defense Rule 12(b)(6) motion as to the class actions Securities Act claims, the district court concluded that the complaint lacks clarity in articulating the grounds for its claims and attributes this failure to a lack of organization and somewhat unclear presentation of the allegations. Gold, at 6. The court noted, for example, that despite many detailed factual allegations and underlined statements from stock offering documents, press releases, or other communications, the court ha[d] difficulty in determining whether Plaintiffs have stated a claim because the class action complaint either lacks facts to support that the statements are false or misleading or provides those facts in a different paragraph without guidance for cross-reference. Id. For guidance, recommended that the class action complaint be clear and concise in identifying false statements and articulating the factual allegations supporting an inference that the statement is false or misleading and directed plaintiffs to attach a chart to the complaint set[ting] forth for each claim ([i]) the alleged false or misleading statements, including the source of the statement in a registration statement where a required element of the claim; (ii) the supporting factual allegations; and (iii) the ultimate conclusion. Id., at 7.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

PSLRA Class Action Defense Cases-Makor v. Tellabs: Seventh Circuit Reaffirms That Class Action Complaint Created “Strong Inference” Of Scienter Required For Securities Class Action To Survive Defense Motion To Dismiss

On Remand from Supreme Court, Seventh Circuit Holds Allegations of Scienter in Securities Class Action Complaint Satisfied Requirements of Private Securities Litigation Reform Act (PSLRA) Warranting Reversal of District Court Order Granting Defense Motion to Dismiss Class Action

Plaintiffs filed a class action against Tellabs and its CEO alleging violations of federal securities laws; defense attorneys moved to dismiss the class action complaint on the grounds that the Private Securities Litigation Reform Act (PSLRA) required plaintiffs to plead facts sufficient to support a “strong inference” of scienter, and that the putative class action failed to do so. The district court granted the defense motion, but the Seventh Circuit reversed and reinstated the class action. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. , 127 S.Ct. 2499 (2007). The Supreme Court granted certiorari and reversed, and our article discussing that opinion may be found HERE. The High Court remanded the class action to the Seventh Circuit “with directions to consider whether the plaintiffs’ allegations of securities fraud in violation of section 10(b) of the Securities Exchange Act of 1934…and SEC Rule 10b-5…create the ‘strong inference’ of scienter, as defined by the Supreme Court in its opinion, that the [PSLRA] requires for the complaint to survive a motion to dismiss.” Makor Issues & Rights, Ltd. v. Tellabs, Inc., _ F.3d ___ (7th Cir. January 17, 2008) [Slip Opn., at 1-2]. On remand, the Seventh Circuit adhered to its prior determination and reinstated the class action.

The Supreme Court explained that the PSLRA “requires plaintiffs to state with particularity both the facts constituting the alleged violation, and the facts evidencing scienter, i.e., the defendant’s intention ‘to deceive, manipulate, or defraud.'” 127 S.Ct. at 2504 (citations omitted). Specifically, the PSLRA requires that the complaint “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind,” 15 U.S.C. § 78u-4(b)(2), and the Supreme Court held at pages 2504 and 2505: “It does not suffice that a reasonable factfinder plausibly could infer from the complaint’s allegations the requisite state of mind. Rather, … a court governed by § 21D(b)(2)…must consider, not only inferences urged by the plaintiff, as the Seventh Circuit did, but also competing inferences rationally drawn from the facts alleged. An inference of fraudulent intent may be plausible, yet less cogent than other, nonculpable explanations for the defendant’s conduct. To qualify as ‘strong’ within the intendment of § 21D(b)(2), we hold, an inference of scienter must be more than merely plausible or reasonable – it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent. (Italics added.) The newly-enunciated test requires a court “take into account plausible opposing inferences,” something the Seventh Circuit expressly refused to do. Id., at 2509. Accordingly, the High Court remanded the class action to the Seventh Circuit to consider these opposing inferences and answer, “would a reasonable person deem the inference of scienter at least as strong as any opposing inference?” Id., at 2511. Our summary of the Supreme Court opinion may be found here .

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Securities Class Action Defense Cases-Stoneridge Investment v. Scientific-Atlanta: Supreme Court Affirms Dismissal Of Securities Class Action Claims Against Third Parties Finding No Reliance By Investors On Third Party Statements

Class Action Claims Alleging Securities Exchange Act of 1934 § 10(b) and Rule 10b-5 Violations Against Customers and Suppliers of Charter Communication for Allegedly Aiding Charter’s Scheme to Publish Misleading Financial Statements Properly Dismissed because Class Action Plaintiffs-Investors did not Rely on any Representations by Customers/Suppliers U.S. Supreme Court Holds

Plaintiffs filed a class action lawsuit against Charter Communications and others, including Scientific-Atlanta and Motorola as customers and suppliers of Charter Communications, alleging securities violations under § 10(b) of the Securities Exchange Act of 1934 (the Act) and SEC Rule 10b-5; specifically, the class action alleged that the customers/suppliers “agreed to arrangements that allowed the investors’ company [Charter Communications] to mislead its auditor and issue a misleading financial statement affecting the stock price.” Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., ___ U.S. ___, 128 S.Ct. 761, 2008 WL 123801, * 2 (January 15, 2008). Defense attorneys for Scientific-Atlanta and Motorola moved the district court to dismiss the class action complaint against them for failure to state a claim, and the court granted the defense motion. _Id._, * 4. Plaintiffs’ appealed, and the Eighth Circuit affirmed concluding, “the allegations did not show that [Scientific-Atlanta and Motorola] made misstatements relied upon by the public or that they violated a duty to disclose,” _id._ The Supreme Court granted review of this issue, critical to numerous class actions pending throughout the country, to “consider the reach of the private right of action…implied in § 10(b) [of the Act]…and SEC Rule 10b-5.” _Id._, at *2. The High Court affirmed the Eighth Circuit’s decision.

The class action complaint alleged that Charter Communications, a cable operator, “engaged in a variety of fraudulent practices so its quarterly reports would meet Wall Street expectations for cable subscriber growth and operating cash flow.” Stoneridge, at *3. As the Supreme Court explained at page *3; “The fraud included misclassification of its customer base; delayed reporting of terminated customers; improper capitalization of costs that should have been shown as expenses; and manipulation of the company’s billing cutoff dates to inflate reported revenues.” The theory underlying the class action claims against Scientific-Atlanta and Motorola was that in 2000, after Charter realized that it would miss cash flow estimates by $15-$20 million despite the fraud described above, Charter altered its arrangements with Scientific-Atlanta and Motorola in an effort to mislead Arthur Andersen: specifically, “Respondents [Scientific-Atlanta and Motorola] supplied Charter with the digital cable converter (set top) boxes that Charter furnished to its customers. Charter arranged to overpay respondents $20 for each set top box it purchased until the end of the year, with the understanding that respondents would return the overpayment by purchasing advertising from Charter. The transactions, it is alleged, had no economic substance; but, because Charter would then record the advertising purchases as revenue and capitalize its purchase of the set top boxes, in violation of generally accepted accounting principles, the transactions would enable Charter to fool its auditor into approving a financial statement showing it met projected revenue and operating cash flow numbers.” Id. Scientific-Atlanta and Motorola allegedly agreed to this arrangement, and participated in drafting documentation “to make it appear the transactions were unrelated and conducted in the ordinary course of business.” Id. Neither Scientific-Atlanta nor Motorola played any role “in preparing or disseminating Charter’s financial statements,” and both of them “booked the transactions as a wash, under generally accepted accounting principles.” Id., at *4.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized