The role of Rule 10b5-1 stock trading plans in assessing the adequacy of a plaintiff’s scienter (i.e., fraudulent intent) allegations is becoming a more frequent issue in securities class actions as the use of these plans increases. A recent decision in the N.D. of Texas – relying on the Netflix opinion – will certainly encourage that trend.
In Fener v. Belo Corp., 425 F.Supp.2d 788 (N.D. Tex. 2006), the court held that at the pleading stage it is the burden of the plaintiff to place any allegedly suspicious stock trading in context. Accordingly, the plaintiffs needed to address “in their complaint whether [the defendant officer] sold his stock pursuant to a Rule 10b-5(1) trading plan formulated before the alleged fraudulent scheme and why, if he did, this does not undercut a strong inference of scienter.”
Holding: Motion to dismiss granted with leave to amend.
The 10b-5 Daily 