Does the fact that an individual defendant's stock trading took place pursuant to a pre-determined Rule 10b5-1 trading plan undermine any inference that the trades were "suspicious"? Courts continue to be split on this question, with the answer often depending on the exact circumstances surrounding the plan's formation and execution.
In In re Questor Sec. Litig., 2013 WL 5486762 (C.D. Cal. Oct. 1, 2013), the court examined a plan that was created around the beginning of the class period and lead to periodic sales of 30,000 shares each until July 2012. When the plan terminated, however, the defendant "made two additional sales of 40,000, more than his usual 30,000 sales, in August and September 2012 [just prior to the end of the class period]." Based on this fact pattern, the court found that while the sales could have been innocent, it was "equally as plausible that, after observing the success of Questcor's aggressive and misleading marketing strategies, [the defendant] set up the plan to avoid the appearance of improper sales."
More generally, the decision contains an extensive analysis of the scienter implications of the defendants' stock trading. The court holds, inter alia, that (a) even where the percentage of stock sold is not suspicious, the sales can support an inference of scienter if the profits are "substantial," and (b) a company's implementation of a stock repurchase plan during the class period can be inconsistent with scienter, because it is illogical for a company to buy shares if it knows the price will fall.
Holding: Motion to dismiss denied.