(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

8th Circuit: Optimistic Statements Not Fraud

The 8th U.S. Circuit Court of Appeals affirmed the dismissal of a suit alleging misrepresentations in an information technology company's statements regarding strong future earnings and its historical earnings statements. As alleged, corporate officers made favorable statements throughout the class period about the company's growth, product demand and future earnings.

The investors, however, claimed that these statements were misleading because the company failed to disclose that it was experiencing an increased level of competition and was losing sales as a result of discounts offered by competitors. The company also allegedly failed to disclose that while it offered substantial product and service discounts in order to close deals before the end of a given quarter, several major clients were delaying or deferring purchases or cancelling orders. The investors also claimed that an aggressive revenue recognition policy, allowing the company to "pull in" revenue projected to be recognized in future quarters, was improper.

According to the court, the complaint did not provide a sufficient indication that the alleged loss of business was inconsistent with its statements that demand was strong. The panel reasoned that "a company could conceivably lose a material number of deals it had pursued, and yet continue to see demand for its products." In addition, the court stated that there was "no indication on the face of the complaint that even a material loss of deals necessarily rendered Cerner unable to achieve its projected earnings" and that "the complaint does not identify a single specific deal that was lost due to alleged changes in Cerner's corporate structure and strategies." The investors also failed to cite any specifics in regards to the alleged "pulling in" of revenues from future quarters.

Finally, the appellate court concluded that the investors failed to raise a sufficient inference of scienter. Allegations that the defendants were motivated "by their desire to increase their bonus and executive compensation packages and to make the company seem more profitable" failed because these motives are common to most corporate officers.