Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...

methods of event studies, Dr. Hakala's study confirms that the chance that the insider trading could
have occurred for some other reason than based upon material insider information is less than one
chance in one thousand. Given that plaintiffs' burden at trial is to prove facts at the "more probable
than not" standard, Dr. Hakala's study is clearly adequate to plead scienter.
Dr. Hakala took the additional step of analyzing the Enron Defendants' option exercises
utilizing the latest techniques of option valuation coupled with empirical research on executive
option exercise behavior. By combining these techniques, Dr. Hakala was able to compare the Enron
executives' behavior not only with what modern economics would expect, but also with how honest
executives actually behave, and, indeed, with how these same Enron executives acted prior to the
Class Period. Dr. Hakala's finding of some 120 option exercises during the Class Period which no
honest executive would ever have undertaken absent foreknowledge that Enron's stock was about
to plummet also establishes scienter. See Hakala Decl., 25.
The Outside Directors either fail to cite any judicial support or merely rely on non-binding
decisions from within the Ninth Circuit to argue that their sales of Enron stock cannot be the basis
of a strong inference of scienter. The Outside Directors all but ignore this Court's pertinent decision
in Landry's, which clearly demonstrates that the Outside Directors' trades were unusual and
suspicious. See Landry's, slip op. at 25 (insider selling by defendants netting over $39.2 million in
illegal insider-trading proceeds was unusual in timing and amount).
Further, as demonstrated below, plaintiffs made numerous specific allegations that the
Outside Directors sold large amounts of Enron stock, constituting large portions of their holdings,
in close temporal proximity to false positive statements. 188, 222, 235, 261, 299. See In re Secure
Computing Corp., 184 F. Supp. 2d 980, 990 (N.D. Cal. 2001) (finding circumstantial support for the
inference of deliberate recklessness in the temporal proximity between defendants' last positive
statements regarding the company's financial status and the disclosure of negative information); see
Stevelman, 174 F.3d at 85-86 (sale of officers' stock in proximity to allegedly false optimistic
statements was significant to issue of whether sales were unusual and suspicious).
Moreover, allegations as to the suspicious amount and timing of the Outside Directors'
trading cannot be disregarded as a matter of law. Whether the Outside Directors' sales were unusual
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