In a class action brought by purchasers of securities in defendant Sierra Wireless, plaintiffs alleged that Sierra and its officers artificially inflated the value of Sierra’s stock by issuing statements containing material misrepresentations and omissions about the company’s future performance and business strategy. The defendants moved to dismiss, arguing that the complaint did not plead securities fraud with the particularity required by the Private Securities Litigation Reform Act (PSLRA) and the Federal rules.

Plaintiffs’ complaint alleged that Sierra and its executives made materially misleading statements by, among other things, continuing to tout the company’s prospects without disclosing its failure to win contracts from important customers. For example, the complaint pointed to several optimistic statements Sierra made about its ability to compete in the market for selling products to original equipment manufacturers (OEMs), including that it expected the OEM business to “continue to be a healthy business for the foreseeable future,” without disclosing that one of its largest customers, PalmOne, had decided not to purchase such products for use with the next generation of its Treo smartphones. Sierra made similar statements about its ability to compete in the PC card business even though it knew it had lost a contract to produce such cards for Verizon.

The Court found that Sierra’s statements concerning the prospects for its business were either literally true, and not refuted by the loss of a particular contract, or “expressions of puffery and corporate optimism” that “do not give rise to securities violations.” The Court pointed out that although the loss of a particular contract may have been a setback for the company, it would not necessarily undermine its ability to compete in a particular area and thus would not demonstrate that a broad statement of corporate optimism about its business was false. Having failed to allege specific facts that would demonstrate that the statements made by Sierra and its executives were false when made, plaintiffs could not satisfy the heightened pleading standards of Rule 9(b) and the PSLRA. Accordingly, the District Court dismissed the complaint without prejudice. (In re Sierra Wireless, Inc., Sec. Litig., No. 05-md-1696 (SHS), 2007 WL 1149235 (S.D.N.Y. April 18, 2007))