On Thursday, the Eighth Circuit affirmed the dismissal of the securities class action against Centene and certain executives. Plaintiffs alleged, among other things, that a strong inference of scienter was demonstrated by two executives’ stock sales in April 2006. The lower court rejected this theory and the Eighth Circuit affirmed, holding that the sale of this stock under Rule 10b5-1 trading plans helped rebut allegations of scienter:
First, Neidorff and Witty each sold a portion of their personal holdings of Centene stock in April 2006 pursuant to Rule 10b5-1 trading plans, in place since December 2005. The sales constituted 5.3 percent of Neidorff’s unrestricted holdings and 2.4 percent of Witty’s unrestricted holdings. Stock sales pursuant to Rule 10b-5 trading plans “can raise an inference that the sales were prescheduled and not suspicious.” Cent. Laborers Pension Fund v. Integrated Elec. Servs. Inc., 497 F.3d 546, 554 n.4 (5th Cir. 2007) (quotation omitted). This is particularly true where, as here, the stock sales at issue represent only a small portion of each seller’s overall holdings. See In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1427-28 (9th Cir.1994) (finding that sales based on a pre-determined trading plan coupled with small sales amounts rebutted allegations of scienter); see also In re Navarre Corp. Sec. Litig., 299 F.3d at 747 (“Insider stock sales are not inherently suspicious; they become so only when the level of trading is dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from the undisclosed information.” (quotation omitted)). Accordingly, no inference of scienter arises from Neidorff’s and Witty’s April 2006 stock sales. (footnotes omitted)
Read the Court’s Opinion in the Centene Case (Elam v. Neidorff) (via The 10b-5 Daily)
