The Southern District of Mississippi denied a motion to dismiss claims brought against a corporation and its executives under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder stemming from certain alleged misstatements in the defendants’ filings with the Securities and Exchange Commission that led to a restatement of earnings for previous quarters. The court, analyzing the motion under the Supreme Court’s standard in Tellabs v. Makor, held that several of the plaintiff’s allegations “give rise to a strong inference of scienter.” Under Tellabs, a complaint will survive a Rule 12(b)(6) motion to dismiss “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.” Tellabs requires that the complaint, when considered in its entirety and upon consideration of plausible opposing inferences, give rise to a strong inference of scienter.
The court found that the plaintiff’s complaint met the Tellabs standard and dismissed the motion. It cited specific allegations which it found created a strong inference of scienter, including, among other things, the alleged specific knowledge of the defendants, the timing of an amendment to an employment contract which would affect the corporation’s earnings, and the financial incentives for defendants in underreporting income in the relevant and subsequently restated quarters. (Beightol v. Navarre Corp., Inc., 2009 WL 169069 (S.D. Miss. Jan. 26, 2009))