Jabil circuit sec investigation backdating gay cowboy dating


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Between May 3 and 10, 2006, the stock price fell from .78 to .21 per share. 73, ¶ 164) On June 12, 2006, Jabil announced a failure to meet the earnings forecast for the third quarter of fiscal year 2006. 73, ¶ 27) During a conference call with analysts and investors, Main attributed the shortfall to (1) mechanical tooling operation losses, (2) a failure to fulfill contract obligations, and (3) higher costs in the warranty and repair division. 73, ¶ 29) On June 21, 2006, the United States Attorney for the Southern District of New York issued Jabil a subpoena, requesting material concerning the stock option practice. 73, ¶ 32) After completion of an internal review, Jabil concluded on November 7, 2006, that its 2005 financial statement and disclosure "should no longer be relied upon" and that it "will need to restate" the information. 73, ¶ 190) Jabil stated that "[t]he issues under review principally reflect changes in the Company's understanding of the requirements for identifying appropriate measurement dates for option grants as defined in relevant accounting guidance or errors in interpreting such guidance, and administrative and logistical errors made in effecting the options program." (Doc. A plaintiff must also satisfy the pleading requirements of Rule 9(b), Federal Rules of Civil Procedure, and the PSLRA. (2) the time and place of each such statement and [where possible] the person responsible for making (or, in the case of omissions, not making) same, . 73, ¶ 115) On October 28, 2005, Jabil included the policy representation in the fiscal year 2005 Form 10-K, signed by Alexander, Grafstein, Lavitt, Main, Morean, Murphy, Newman, Raymund, Sansone, and Walters. 73, ¶ 138) The complaint includes no allegation of the specific dates of suspiciously timed stock option grants in 2005. However, the PSLRA requires a plaintiff to describe the confidential witness with sufficient particularity to support the probability that the witness is an actual person who possesses information about the , 250 F. 75 at 14-15) Although the complaint specifies the offending statement and identifies when and where the defendants issued the statement, the complaint includes deficient allegations concerning the falsity of the statement. 25 in accounting for its stock options, and Statement of Financial Accounting Standards No. 73, ¶¶ 165, 168) Main's statements failed to forestall the decline of Jabil's stock price. Sarbanes-Oxley requires initiation of the action within the earlier of two years after discovery of a fact evidencing securities fraud or five years after the fraudulent conduct. To state a claim under section 10(b) or Rule 10b-5, a plaintiff must allege "(1) a misstatement or omission (2) of a material fact (3) made with scienter (4) upon which the plaintiff relied (5) that proximately caused the plaintiff's loss." , 256 F.3d at 1224 (internal quotation marks omitted). (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud.'" , 348 F. 73, ¶ 115) Additionally, Grafstein, Murphy, Newman, Sansone, Main, Mondello, Lewis, Brown, Alexander, Edwards, Lavitt, Morean, Paver and Raymund received stock options dated December 16, 2003, at .75 per share, "the sixth lowest trading price of the month." (Doc. The defendants argue that the plaintiffs (1) fail to allege "that any specific grant of stock to any specific defendant was backdated"; (2) fail to allege "that any grant was backdated from any given actual (or approximate) date of authorization"; (3) fail to allege "the role played by each defendant with respect to each such grant"; (4) fail to allege "the means by which the backdating occurred on each occasion"; and (5) fail to allege "the amount of backdated stock each defendant received and the specific benefit obtained." (Doc.The complaint generally alleges that each statement is false and misleading because Jabil failed to record the appropriate compensation expense for the backdated options. The plaintiffs fail to allege how each statement was conveyed, whether in an interview, press release, or some other manner. 73, ¶ 150) On the same day, Main and Alexander hosted a conference call in which they repeated the projection announced in the press release and commented on Jabil's business condition. 73, ¶ 151) Consumer demand's done pretty darn well all year. But for end market contribution overall, again looking at the full portfolio of businesses that we're in, I think that a 3 to 5% end market growth rate is appropriate. 73, ¶ 151) In response to a question about the strength of demand from large customers, Main stated that "`[i]f you look back at the 10-K, Phillips and Nokia were the two biggest customers, and they were in the low teens.However, the complaint fails to allege an adequate basis for the claim that Jabil was required to record a compensation expense for the options. Absent an allegation sufficient to characterize each statement as "group-published information," it is unreasonable to presume each statement is the result of the defendants' collective conduct. our dependence on a limited number of customers; business and competitive factors generally affecting the electronic manufacturing services industry, our customers, and our business; other factors that we may not have currently identified or quantified. It would be tough to move the needle a lot if we weren't doing well with the bigger customers.'" (Doc. actually had been backdated weeks or months to a date when the stock was trading at a lower price." (Doc. The complaint alleges that the defendants violated the Exchange Act by knowingly, falsely, and misleadingly stating Jabil's stock option practice, accounting practice, and earnings forecast. 73 at 53-139) The complaint alleges that during the class period the defendants stated that "[t]he exercise price of all incentive stock options granted under the Plans is to be at least equal to the fair market value of shares of common stock on the date of grant" (the "policy representation"). 73, ¶ 10) The plaintiffs allege that the policy representation is false and misleading because the defendants priced stock options lower than the fair market value of common stock on the day of the grant. 73, ¶ 117) The complaint contains the following specific allegations concerning the timing of the representation, the individual defendants who approved the representation, and the reason the representation is false and misleading.The complaint alleges which individual defendant signed each Form 10-K. "A plaintiff must (1) identify specific forecasts and the company insider who adopted them; (2) point to specific interactions between the insider and the analyst [or journalist] which gave rise to the entanglement; and (3) state the dates when these interactions occurred." , 977 F. The plaintiffs' allegations fail to satisfy the particularity requirement because they fail to identify which defendant conveyed the denial to the news media and when this occurred. According to Business Outlook, on March 22, 2006, Main stated that "[d]emand for Jabil's outsourcing services continues to be broad-based across numerous markets." (Doc.With regard to the misrepresentation of Jabil's business condition, the plaintiffs allege that Jabil's stock price declined after the June 12 and 22, 2006, disclosures. 73, ¶¶ 32-33) The plaintiffs assert in count two that Grafstein, Lavitt, Lewis, Main, Morean, Newman, Murphy, Sansone, and Walters (the "section 14(a) defendants") violated section 14(a) of the Exchange Act and Rule 14a-9. The plaintiff must allege that "the proxy solicitation itself, rather than the particular defect in the solicitation materials, was an essential link in the accomplishment of the transaction." or omissions. 73, ¶¶ 268, 270) Specifically, the proxy statements "omitted material facts, including the fact that the defendants were causing Jabil to engage in an option backdating scheme." (Doc.To state a claim under section 14(a) of the Exchange Act and Rule 14a-9, a plaintiff must allege that the defendant prepared a proxy statement containing a material misstatement or omission that caused the plaintiff's injury. 73, ¶ 268) The plaintiffs allege that each proxy statement was "an essential link in the accomplishment of the continuation of defendants' unlawful stock option backdating scheme." (Doc.

73, ¶ 147) "Section 10(b) liability can be predicated on a defendant's false statement to securities analysts or to the financial or news media." , 485 U. 73, ¶ 150) The defendants argue that no liability accrues from these "forward-looking statements," protected under the PSLRA's safe harbor provision. 75 at 34-41) The PSLRA defines a "forward-looking statement" as (1) "a statement containing a projection of revenues, income (including income loss), earnings (including earnings loss) per share, . The statement addresses "financial items," including "statement[s] containing a projection of revenue," "earnings per share," and "[expected] economic performance." §§ 77z-2(i)(1), 78u-5(i)(1); "On any motion to dismiss based upon subsection (c)(1) of this section, the court shall consider any statement cited in the complaint and any cautionary statement accompanying the forward-looking statement, which are not subject to material dispute, cited by the defendant." 15 U. The Eleventh Circuit held that "[b]ecause the allegation is that this section of the prospectus is misleading, due to material omissions, we view the section as a whole and determine whether it is forward-looking." The section discussed the company's future success and risk factors that might affect that success. However, because the plaintiffs allege that a material omission causes the conference call to mislead, requires examination of the conference call to determine whether it is forward-looking. 21 at 2-5) qualify as forward-looking because they discuss "future economic performance," and "the plans and objectives of management for future operations." events and the future financial performance of the Company. 26 at 37) "Congress was explicit in stating that meaningful cautionary language could incorporate by reference information contained in documents filed with the SEC." , 863 F.2d 809, 814 (11th Cir. The Eleventh Circuit describes severe recklessness as "limited to those highly unreasonable omissions or misrepresentations" that are known to the defendant or so obvious that the defendant must have been aware and "that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers." requires consideration of "plausible nonculpable explanations for the defendant's conduct, as well as inferences favoring the plaintiff." 127 S. The complaint alleges that several individual defendants engaged in insider trading by "selling Jabil stock while in possession of material, adverse non-public information concerning the Company" despite each individual defendant's duty to refrain from such conduct. 73, ¶ 259) On March 23, 2006, the day after the favorable earnings announcement, Brown, Main, and Sansone sold 244,800 shares of Jabil stock for .8 million of profit. 73, ¶ 156) On March 27, 2006, Alexander and Sansone sold 98,664 shares for .9 million of profit. 73, ¶ 156) On March 30, 2006, Brown sold 58,000 shares for

73, ¶ 147) "Section 10(b) liability can be predicated on a defendant's false statement to securities analysts or to the financial or news media." , 485 U. 73, ¶ 150) The defendants argue that no liability accrues from these "forward-looking statements," protected under the PSLRA's safe harbor provision. 75 at 34-41) The PSLRA defines a "forward-looking statement" as (1) "a statement containing a projection of revenues, income (including income loss), earnings (including earnings loss) per share, . The statement addresses "financial items," including "statement[s] containing a projection of revenue," "earnings per share," and "[expected] economic performance." §§ 77z-2(i)(1), 78u-5(i)(1); "On any motion to dismiss based upon subsection (c)(1) of this section, the court shall consider any statement cited in the complaint and any cautionary statement accompanying the forward-looking statement, which are not subject to material dispute, cited by the defendant." 15 U. The Eleventh Circuit held that "[b]ecause the allegation is that this section of the prospectus is misleading, due to material omissions, we view the section as a whole and determine whether it is forward-looking." The section discussed the company's future success and risk factors that might affect that success. However, because the plaintiffs allege that a material omission causes the conference call to mislead, requires examination of the conference call to determine whether it is forward-looking. 21 at 2-5) qualify as forward-looking because they discuss "future economic performance," and "the plans and objectives of management for future operations." events and the future financial performance of the Company. 26 at 37) "Congress was explicit in stating that meaningful cautionary language could incorporate by reference information contained in documents filed with the SEC." , 863 F.2d 809, 814 (11th Cir. The Eleventh Circuit describes severe recklessness as "limited to those highly unreasonable omissions or misrepresentations" that are known to the defendant or so obvious that the defendant must have been aware and "that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers." requires consideration of "plausible nonculpable explanations for the defendant's conduct, as well as inferences favoring the plaintiff." 127 S. The complaint alleges that several individual defendants engaged in insider trading by "selling Jabil stock while in possession of material, adverse non-public information concerning the Company" despite each individual defendant's duty to refrain from such conduct. 73, ¶ 259) On March 23, 2006, the day after the favorable earnings announcement, Brown, Main, and Sansone sold 244,800 shares of Jabil stock for $8.8 million of profit. 73, ¶ 156) On March 27, 2006, Alexander and Sansone sold 98,664 shares for $3.9 million of profit. 73, ¶ 156) On March 30, 2006, Brown sold 58,000 shares for $1.7 million of profit. 73, ¶ 156) Between March 30 and April 13, 2006, Morean sold 1,017,200 shares for $43.1 million of profit. 73, ¶ 156) "While a showing of profitable stock trades is not a prerequisite to prove scienter, where it is alleged, plaintiffs `bear the burden of showing that sales by insiders were in fact unusual or suspicious in amount and in timing.'" fraud `turns upon (1) the percentage of holdings sold by a defendant, (2) the number of defendants who sold stock, and (3) the difference between stock sales during the relevant time period and prior activity.'" , 253 F.3d 423, 435 (9th Cir. A showing of unusualness or suspiciousness requires an allegation of the amount and timing of the stock options granted during the class period and the options granted before or after the class period. Approximately $3.7 million of the restatement expense relates to options "granted to a director over a period of five years for his providing consulting services to the Company." (Doc.

Grafstein ("Grafstein") (beginning in April, 2002), Mel S. 73, ¶ 4) The 19 Plans require the exercise price "to be at least equal to the fair market value of shares of common stock on the date of the grant." (Doc. 73, ¶¶ 8, 117) Although not unlawful , backdating requires attention to Generally Accepted Accounting Principles ("GAAP"). 25 ("APB 25"), titled "Accounting for Stock Issued to Employees," requires the recording of the "intrinsic value" of a fixed stock option on its "measurement date." (Doc. 22) The fair market value method requires a corporation to expense an employee stock option when granted. That date for many or most plans is the date an option or purchase right is granted or stock is awarded to an individual employee." On March 18, 2006, The Wall Street Journal published an article, "The Perfect Payday — Some CEOs reap millions by landing stock options when they are most valuable; Luck — or something else? 73, ¶ 143) The article questions the timing of options granted to executives of several technology companies. 73, ¶ 143) The article identifies six stock options granted to Jabil's chief executive officer, Main, at "suspicious" times between 19. 73, ¶ 144) A statistical analysis performed at the behest of the newspaper calculates the supposed odds of Main's six grants occurring at such auspicious moments as "roughly one million to one." (Doc. The two-year limitation poses no problem because the plaintiffs sued the defendants on September 18, 2006, six months after publication of The Wall Street Journal's article. This means the who, what, when, where, and how: the first paragraph of any newspaper story." , 466 F.3d at 1262 (quoting 15 U. 73, ¶ 100) On November 25, 2002, Jabil included the policy representation in the fiscal year 2002 Form 10-K, signed by Grafstein, Lavitt, Lewis, Main, Morean, Murphy, Newman, and Raymund. 73, ¶¶ 110-11) However, Alexander, Murphy, Morean, Sansone, Raymund, Main, Rapp, Brown, Mondello, Lavitt, Newman, Paver, and Lewis received stock options dated September 20, 2001, "the second lowest closing price of the month and the year." (Doc.

Newman During the class period and as part of its compensation program, Jabil granted stock options to its directors, officers, and employees. 73, ¶ 80) Jabil was required to issue the options in accord with the company's 1992 Stock Option Plan and 2002 Stock Incentive Plan (collectively, the "19 Plans"). 73, ¶ 80) A stock option grants the recipient an option to purchase company stock at a specified price, called the "exercise price." (Doc. 73, ¶ 5) "`Backdating' is a practice by which a stock option is reported as being granted on one date, but . 73, ¶ 6) The exercise price of a backdated option is less than the fair market value of a share of common stock on the day of the grant, resulting in an "instant paper gain." (Doc. 22) "The measurement date for determining compensation cost in stock option, purchase, and award plans, is the first on which are known both (1) the number of shares that an individual employee is entitled to receive and (2) the option or purchase prices, if any. "A sufficient level of factual support for a [10b] claim may be found where the circumstances of the fraud are pled in detail. On November 28, 2001, Jabil included the policy representation in the fiscal year 2001 Form 10-K, signed by Lavitt, Lewis, Main, Morean, Murphy, Newman, Raymund, and Sansone. 73, ¶¶ 106-07) However, Alexander, Brown, Edwards, Lavitt, Lewis, Main, Mondello, Morean, Murphy, Newman, Paver, Raymund, and Rapp received stock options dated October 12, 2000, at $42.75 per share, "the second lowest trading price of the month." (Doc.

Morean ("Morean") served as chairman of the board of directors. 73, ¶ 211) Because a stock option that is not backdated has no intrinsic value on the measurement date, a company need not record any employee compensation. 73, ¶ 211) In documents filed during the class period, Jabil reported that "[t]he Company applies APB Opinion No. 73, ¶ 151) In response to the positive news, Jabil's stock reached the class period high of $43.31 per share on March 27, 2006. 73, ¶ 233) However, as backdating concerns rose, Jabil's stock price "began to decline precipitously" between April 6 and May 1, 2006. 73, ¶ 158) Notwithstanding the decline, in April and early May, 2006, analysts at several prominent institutions expressed their confidence in Jabil and its stock option practice. 73, ¶¶ 159-60) On May 3, 2006, Jabil disclosed that the Securities and Exchange Commission ("SEC") had initiated an informal inquiry into Jabil's stock option practice. 73, ¶ 163) Jabil disclosed also that shareholders had initiated a derivative action in state court against Jabil executives and directors who had allegedly breached their fiduciary duty to Jabil in connection with the stock option practice. 73, ¶ 163) Jabil's board of directors formed the Special Review Committee to review the allegations in the derivative suit and other suits that would follow. 73, ¶¶ 34, 36, 163, 179) The next day at the company's headquarters, Jabil hosted an analyst day during which Main rejected the backdating allegations and called The Wall Street Journal's article a "witch hunt." (Doc. The new, longer The defendants argue that the plaintiffs cannot state a claim based on any allegedly false and misleading statement issued more than five years before September 18, 2006, the day the action commenced. 75 at 8) Under the defendants' argument, the statute of repose bars a claim based on an allegation of a statement issued on or before September 18, 2001. Jabil repeatedly assured investors that the company granted stock options at an exercise price equal to 100 percent of the fair market value of common stock on the day of the grant and that the company applied APB 25. 73, ¶¶ 10-11) A reasonable shareholder had no reason to question the defendants' veracity. Although the complaint contains allegations of false and misleading statements beginning in 1997, any statement issued on or before September 18, 2001, cannot form the basis of the plaintiffs' section 10(b) claim. 73, ¶ 109) On November 5, 2004, Jabil included the policy representation in the fiscal year 2004 Form 10-K, signed by Alexander, Grafstein, Lavitt, Main, Morean, Murphy, Newman, Raymund, and Sansone. 73, ¶¶ 125-26) However, Grafstein, Murphy, Newman, Sansone, Main, Mondello, Lewis, Brown, Alexander, Edwards, Lavitt, Morean, Paver, and Raymund received stock options dated October 2, 2003, at $26.14 per share, "the lowest closing price of the month and the second lowest trading price for the remainder of the calendar year." (Doc.

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73, ¶ 147) "Section 10(b) liability can be predicated on a defendant's false statement to securities analysts or to the financial or news media." , 485 U. 73, ¶ 150) The defendants argue that no liability accrues from these "forward-looking statements," protected under the PSLRA's safe harbor provision. 75 at 34-41) The PSLRA defines a "forward-looking statement" as (1) "a statement containing a projection of revenues, income (including income loss), earnings (including earnings loss) per share, . The statement addresses "financial items," including "statement[s] containing a projection of revenue," "earnings per share," and "[expected] economic performance." §§ 77z-2(i)(1), 78u-5(i)(1); "On any motion to dismiss based upon subsection (c)(1) of this section, the court shall consider any statement cited in the complaint and any cautionary statement accompanying the forward-looking statement, which are not subject to material dispute, cited by the defendant." 15 U. The Eleventh Circuit held that "[b]ecause the allegation is that this section of the prospectus is misleading, due to material omissions, we view the section as a whole and determine whether it is forward-looking." The section discussed the company's future success and risk factors that might affect that success. However, because the plaintiffs allege that a material omission causes the conference call to mislead, requires examination of the conference call to determine whether it is forward-looking. 21 at 2-5) qualify as forward-looking because they discuss "future economic performance," and "the plans and objectives of management for future operations." events and the future financial performance of the Company. 26 at 37) "Congress was explicit in stating that meaningful cautionary language could incorporate by reference information contained in documents filed with the SEC." , 863 F.2d 809, 814 (11th Cir. The Eleventh Circuit describes severe recklessness as "limited to those highly unreasonable omissions or misrepresentations" that are known to the defendant or so obvious that the defendant must have been aware and "that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers." requires consideration of "plausible nonculpable explanations for the defendant's conduct, as well as inferences favoring the plaintiff." 127 S. The complaint alleges that several individual defendants engaged in insider trading by "selling Jabil stock while in possession of material, adverse non-public information concerning the Company" despite each individual defendant's duty to refrain from such conduct. 73, ¶ 259) On March 23, 2006, the day after the favorable earnings announcement, Brown, Main, and Sansone sold 244,800 shares of Jabil stock for $8.8 million of profit. 73, ¶ 156) On March 27, 2006, Alexander and Sansone sold 98,664 shares for $3.9 million of profit. 73, ¶ 156) On March 30, 2006, Brown sold 58,000 shares for $1.7 million of profit. 73, ¶ 156) Between March 30 and April 13, 2006, Morean sold 1,017,200 shares for $43.1 million of profit. 73, ¶ 156) "While a showing of profitable stock trades is not a prerequisite to prove scienter, where it is alleged, plaintiffs `bear the burden of showing that sales by insiders were in fact unusual or suspicious in amount and in timing.'" fraud `turns upon (1) the percentage of holdings sold by a defendant, (2) the number of defendants who sold stock, and (3) the difference between stock sales during the relevant time period and prior activity.'" , 253 F.3d 423, 435 (9th Cir. A showing of unusualness or suspiciousness requires an allegation of the amount and timing of the stock options granted during the class period and the options granted before or after the class period. Approximately $3.7 million of the restatement expense relates to options "granted to a director over a period of five years for his providing consulting services to the Company." (Doc. Grafstein ("Grafstein") (beginning in April, 2002), Mel S. 73, ¶ 4) The 19 Plans require the exercise price "to be at least equal to the fair market value of shares of common stock on the date of the grant." (Doc. 73, ¶¶ 8, 117) Although not unlawful , backdating requires attention to Generally Accepted Accounting Principles ("GAAP"). 25 ("APB 25"), titled "Accounting for Stock Issued to Employees," requires the recording of the "intrinsic value" of a fixed stock option on its "measurement date." (Doc. 22) The fair market value method requires a corporation to expense an employee stock option when granted. That date for many or most plans is the date an option or purchase right is granted or stock is awarded to an individual employee." On March 18, 2006, The Wall Street Journal published an article, "The Perfect Payday — Some CEOs reap millions by landing stock options when they are most valuable; Luck — or something else? 73, ¶ 143) The article questions the timing of options granted to executives of several technology companies. 73, ¶ 143) The article identifies six stock options granted to Jabil's chief executive officer, Main, at "suspicious" times between 19. 73, ¶ 144) A statistical analysis performed at the behest of the newspaper calculates the supposed odds of Main's six grants occurring at such auspicious moments as "roughly one million to one." (Doc. The two-year limitation poses no problem because the plaintiffs sued the defendants on September 18, 2006, six months after publication of The Wall Street Journal's article. This means the who, what, when, where, and how: the first paragraph of any newspaper story." , 466 F.3d at 1262 (quoting 15 U. 73, ¶ 100) On November 25, 2002, Jabil included the policy representation in the fiscal year 2002 Form 10-K, signed by Grafstein, Lavitt, Lewis, Main, Morean, Murphy, Newman, and Raymund. 73, ¶¶ 110-11) However, Alexander, Murphy, Morean, Sansone, Raymund, Main, Rapp, Brown, Mondello, Lavitt, Newman, Paver, and Lewis received stock options dated September 20, 2001, "the second lowest closing price of the month and the year." (Doc. Newman During the class period and as part of its compensation program, Jabil granted stock options to its directors, officers, and employees. 73, ¶ 80) Jabil was required to issue the options in accord with the company's 1992 Stock Option Plan and 2002 Stock Incentive Plan (collectively, the "19 Plans"). 73, ¶ 80) A stock option grants the recipient an option to purchase company stock at a specified price, called the "exercise price." (Doc. 73, ¶ 5) "`Backdating' is a practice by which a stock option is reported as being granted on one date, but . 73, ¶ 6) The exercise price of a backdated option is less than the fair market value of a share of common stock on the day of the grant, resulting in an "instant paper gain." (Doc. 22) "The measurement date for determining compensation cost in stock option, purchase, and award plans, is the first on which are known both (1) the number of shares that an individual employee is entitled to receive and (2) the option or purchase prices, if any. "A sufficient level of factual support for a [10b] claim may be found where the circumstances of the fraud are pled in detail. On November 28, 2001, Jabil included the policy representation in the fiscal year 2001 Form 10-K, signed by Lavitt, Lewis, Main, Morean, Murphy, Newman, Raymund, and Sansone. 73, ¶¶ 106-07) However, Alexander, Brown, Edwards, Lavitt, Lewis, Main, Mondello, Morean, Murphy, Newman, Paver, Raymund, and Rapp received stock options dated October 12, 2000, at $42.75 per share, "the second lowest trading price of the month." (Doc. Morean ("Morean") served as chairman of the board of directors. 73, ¶ 211) Because a stock option that is not backdated has no intrinsic value on the measurement date, a company need not record any employee compensation. 73, ¶ 211) In documents filed during the class period, Jabil reported that "[t]he Company applies APB Opinion No. 73, ¶ 151) In response to the positive news, Jabil's stock reached the class period high of $43.31 per share on March 27, 2006. 73, ¶ 233) However, as backdating concerns rose, Jabil's stock price "began to decline precipitously" between April 6 and May 1, 2006. 73, ¶ 158) Notwithstanding the decline, in April and early May, 2006, analysts at several prominent institutions expressed their confidence in Jabil and its stock option practice. 73, ¶¶ 159-60) On May 3, 2006, Jabil disclosed that the Securities and Exchange Commission ("SEC") had initiated an informal inquiry into Jabil's stock option practice. 73, ¶ 163) Jabil disclosed also that shareholders had initiated a derivative action in state court against Jabil executives and directors who had allegedly breached their fiduciary duty to Jabil in connection with the stock option practice. 73, ¶ 163) Jabil's board of directors formed the Special Review Committee to review the allegations in the derivative suit and other suits that would follow. 73, ¶¶ 34, 36, 163, 179) The next day at the company's headquarters, Jabil hosted an analyst day during which Main rejected the backdating allegations and called The Wall Street Journal's article a "witch hunt." (Doc. The new, longer The defendants argue that the plaintiffs cannot state a claim based on any allegedly false and misleading statement issued more than five years before September 18, 2006, the day the action commenced. 75 at 8) Under the defendants' argument, the statute of repose bars a claim based on an allegation of a statement issued on or before September 18, 2001. Jabil repeatedly assured investors that the company granted stock options at an exercise price equal to 100 percent of the fair market value of common stock on the day of the grant and that the company applied APB 25. 73, ¶¶ 10-11) A reasonable shareholder had no reason to question the defendants' veracity. Although the complaint contains allegations of false and misleading statements beginning in 1997, any statement issued on or before September 18, 2001, cannot form the basis of the plaintiffs' section 10(b) claim. 73, ¶ 109) On November 5, 2004, Jabil included the policy representation in the fiscal year 2004 Form 10-K, signed by Alexander, Grafstein, Lavitt, Main, Morean, Murphy, Newman, Raymund, and Sansone. 73, ¶¶ 125-26) However, Grafstein, Murphy, Newman, Sansone, Main, Mondello, Lewis, Brown, Alexander, Edwards, Lavitt, Morean, Paver, and Raymund received stock options dated October 2, 2003, at $26.14 per share, "the lowest closing price of the month and the second lowest trading price for the remainder of the calendar year." (Doc.

.7 million of profit. 73, ¶ 156) Between March 30 and April 13, 2006, Morean sold 1,017,200 shares for .1 million of profit. 73, ¶ 156) "While a showing of profitable stock trades is not a prerequisite to prove scienter, where it is alleged, plaintiffs `bear the burden of showing that sales by insiders were in fact unusual or suspicious in amount and in timing.'" fraud `turns upon (1) the percentage of holdings sold by a defendant, (2) the number of defendants who sold stock, and (3) the difference between stock sales during the relevant time period and prior activity.'" , 253 F.3d 423, 435 (9th Cir. A showing of unusualness or suspiciousness requires an allegation of the amount and timing of the stock options granted during the class period and the options granted before or after the class period. Approximately .7 million of the restatement expense relates to options "granted to a director over a period of five years for his providing consulting services to the Company." (Doc. Grafstein ("Grafstein") (beginning in April, 2002), Mel S. 73, ¶ 4) The 19 Plans require the exercise price "to be at least equal to the fair market value of shares of common stock on the date of the grant." (Doc. 73, ¶¶ 8, 117) Although not unlawful , backdating requires attention to Generally Accepted Accounting Principles ("GAAP"). 25 ("APB 25"), titled "Accounting for Stock Issued to Employees," requires the recording of the "intrinsic value" of a fixed stock option on its "measurement date." (Doc. 22) The fair market value method requires a corporation to expense an employee stock option when granted. That date for many or most plans is the date an option or purchase right is granted or stock is awarded to an individual employee." On March 18, 2006, The Wall Street Journal published an article, "The Perfect Payday — Some CEOs reap millions by landing stock options when they are most valuable; Luck — or something else? 73, ¶ 143) The article questions the timing of options granted to executives of several technology companies. 73, ¶ 143) The article identifies six stock options granted to Jabil's chief executive officer, Main, at "suspicious" times between 19. 73, ¶ 144) A statistical analysis performed at the behest of the newspaper calculates the supposed odds of Main's six grants occurring at such auspicious moments as "roughly one million to one." (Doc. The two-year limitation poses no problem because the plaintiffs sued the defendants on September 18, 2006, six months after publication of The Wall Street Journal's article. This means the who, what, when, where, and how: the first paragraph of any newspaper story." , 466 F.3d at 1262 (quoting 15 U. 73, ¶ 100) On November 25, 2002, Jabil included the policy representation in the fiscal year 2002 Form 10-K, signed by Grafstein, Lavitt, Lewis, Main, Morean, Murphy, Newman, and Raymund. 73, ¶¶ 110-11) However, Alexander, Murphy, Morean, Sansone, Raymund, Main, Rapp, Brown, Mondello, Lavitt, Newman, Paver, and Lewis received stock options dated September 20, 2001, "the second lowest closing price of the month and the year." (Doc. Newman During the class period and as part of its compensation program, Jabil granted stock options to its directors, officers, and employees. 73, ¶ 80) Jabil was required to issue the options in accord with the company's 1992 Stock Option Plan and 2002 Stock Incentive Plan (collectively, the "19 Plans"). 73, ¶ 80) A stock option grants the recipient an option to purchase company stock at a specified price, called the "exercise price." (Doc. 73, ¶ 5) "`Backdating' is a practice by which a stock option is reported as being granted on one date, but . 73, ¶ 6) The exercise price of a backdated option is less than the fair market value of a share of common stock on the day of the grant, resulting in an "instant paper gain." (Doc. 22) "The measurement date for determining compensation cost in stock option, purchase, and award plans, is the first on which are known both (1) the number of shares that an individual employee is entitled to receive and (2) the option or purchase prices, if any. "A sufficient level of factual support for a [10b] claim may be found where the circumstances of the fraud are pled in detail. On November 28, 2001, Jabil included the policy representation in the fiscal year 2001 Form 10-K, signed by Lavitt, Lewis, Main, Morean, Murphy, Newman, Raymund, and Sansone. 73, ¶¶ 106-07) However, Alexander, Brown, Edwards, Lavitt, Lewis, Main, Mondello, Morean, Murphy, Newman, Paver, Raymund, and Rapp received stock options dated October 12, 2000, at .75 per share, "the second lowest trading price of the month." (Doc. Morean ("Morean") served as chairman of the board of directors. 73, ¶ 211) Because a stock option that is not backdated has no intrinsic value on the measurement date, a company need not record any employee compensation. 73, ¶ 211) In documents filed during the class period, Jabil reported that "[t]he Company applies APB Opinion No. 73, ¶ 151) In response to the positive news, Jabil's stock reached the class period high of .31 per share on March 27, 2006. 73, ¶ 233) However, as backdating concerns rose, Jabil's stock price "began to decline precipitously" between April 6 and May 1, 2006. 73, ¶ 158) Notwithstanding the decline, in April and early May, 2006, analysts at several prominent institutions expressed their confidence in Jabil and its stock option practice. 73, ¶¶ 159-60) On May 3, 2006, Jabil disclosed that the Securities and Exchange Commission ("SEC") had initiated an informal inquiry into Jabil's stock option practice. 73, ¶ 163) Jabil disclosed also that shareholders had initiated a derivative action in state court against Jabil executives and directors who had allegedly breached their fiduciary duty to Jabil in connection with the stock option practice. 73, ¶ 163) Jabil's board of directors formed the Special Review Committee to review the allegations in the derivative suit and other suits that would follow. 73, ¶¶ 34, 36, 163, 179) The next day at the company's headquarters, Jabil hosted an analyst day during which Main rejected the backdating allegations and called The Wall Street Journal's article a "witch hunt." (Doc. The new, longer The defendants argue that the plaintiffs cannot state a claim based on any allegedly false and misleading statement issued more than five years before September 18, 2006, the day the action commenced. 75 at 8) Under the defendants' argument, the statute of repose bars a claim based on an allegation of a statement issued on or before September 18, 2001. Jabil repeatedly assured investors that the company granted stock options at an exercise price equal to 100 percent of the fair market value of common stock on the day of the grant and that the company applied APB 25. 73, ¶¶ 10-11) A reasonable shareholder had no reason to question the defendants' veracity. Although the complaint contains allegations of false and misleading statements beginning in 1997, any statement issued on or before September 18, 2001, cannot form the basis of the plaintiffs' section 10(b) claim. 73, ¶ 109) On November 5, 2004, Jabil included the policy representation in the fiscal year 2004 Form 10-K, signed by Alexander, Grafstein, Lavitt, Main, Morean, Murphy, Newman, Raymund, and Sansone. 73, ¶¶ 125-26) However, Grafstein, Murphy, Newman, Sansone, Main, Mondello, Lewis, Brown, Alexander, Edwards, Lavitt, Morean, Paver, and Raymund received stock options dated October 2, 2003, at .14 per share, "the lowest closing price of the month and the second lowest trading price for the remainder of the calendar year." (Doc.

73, ¶¶ 92, 111) Thus, when exercising an option, the recipient purchases stock at the market price on the day of the grant, rather than the price on the day of purchase. 73, ¶ 211) A backdated option has intrinsic value on the measurement date and "the difference between its exercise price and the quoted market price must be recorded as compensation expense to be recognized over the vesting period of the option." (Doc. 22) Under SFAS 123, a corporation accounting for a stock option grant is required to use the fair market value method rather than the intrinsic value method. 73, ¶ 144) In the days and weeks following publication, Main and other Jabil executives denied that Jabil had engaged in backdating. 73, ¶¶ 146-47, 168-69, 180) Allegedly "diverting investors' focus from backdating allegations," on March 22, 2006, Jabil issued a press release announcing favorable financial results for the second quarter of fiscal year 2006, as well as an improved forecast for the third quarter and entire fiscal year. 73, ¶ 15) Main attributed Jabil's success to "burning on fire demand." (Doc. The facts alleged and the publicly filed documents submitted by the defendants show that before the February, 2006, publication of The Wall Street Journal's article, a reasonable shareholder had no reason to question the defendants' stock option practice. The five-year repose period prohibits the plaintiffs from basing a claim on conduct that occurred on or before September 18, 2001. 73, ¶ 104) On November 12, 2003, Jabil included the policy representation in the fiscal year 2003 Form 10-K, signed by Grafstein, Lavitt, Lewis, Main, Morean, Murphy, Newman, Raymund, and Sansone. 73, ¶ 114) However, Alexander, Brown, Edwards, Grafstein, Lavitt, Lewis, Main, Mondello, Morean, Murphy, Newman, Paver, Raymund, and Sansone received stock options dated October 17, 2002, at .95 per share, "the seventh lowest closing price of the year." (Doc. Alexander ("Alexander") served as treasurer from November, 1996, through August, 2004, and was promoted to chief financial officer in September, 2004. CW5's report concerning the timing of the entry of the replacement options may provide circumstantial evidence of backdating on a particular occasion. 73, ¶ 105(b)) However, the plaintiffs fail to adequately allege a connection between the replacement options dated September 21, 2001, and the "suspiciously timed" options dated September 20, 2001. 73, ¶¶ 104-05) The CW5 allegations therefore fail to provide a sufficient basis for inferring that any statement is false and misleading.



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