The District Court denied in part a motion for summary judgment in which defendants (a public company and individual officers and directors) in a class action lawsuit challenged the plaintiffs’ ability to demonstrate that defendants acted with the requisite scienter to support its claims under Section 10(b) of the Securities Exchange Act of 1934. The plaintiffs asserted that defendants made numerous false and misleading statements regarding, among other things, demand for its products and anticipated revenues. Plaintiffs supported their showing of scienter with evidence that the individual defendants sold hundreds of millions of dollars worth of stock during the class period and that defendants knew of declining demand for the company’s products during such period.

The Court first applied the Ninth Circuit’s threefactor test to evaluate whether defendants’ stock sales supported plaintiffs’ claim of scienter. This test required the Court to consider (i) the amount and percentage of shares sold, (ii) the timing of the sales, and (iii) consistency of the sales with prior trading history. The Court found that, standing alone, defendants’ stock sales did not create a triable question of fact. It ruled, however, that the level of defendants’ sales combined with (i) defendants’ allegedly misleading statements prior to such sales; and (ii) evidence that defendants sought to increase projections at a time when they knew demand for their products was declining, inventory was increasing, and other adverse conditions existed was sufficient to create a triable question of fact with respect to whether defendants had acted with scienter. (In re JDS Uniphase Corp. Securities Litigation, 2007 WL 2429593 (N.D.Cal. Aug. 24, 2007))