Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...
Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...
Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...
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methods <strong>of</strong> event studies, Dr. Hakala's study confirms that the chance that the <strong>in</strong>sider trad<strong>in</strong>g could<br />
have occurred for some other reason than based upon material <strong>in</strong>sider <strong>in</strong>formation is less than one<br />
chance <strong>in</strong> one thousand. Given that pla<strong>in</strong>tiffs' burden at trial is <strong>to</strong> prove facts at the "more probable<br />
than not" standard, Dr. Hakala's study is clearly adequate <strong>to</strong> plead scienter.<br />
Dr. Hakala <strong>to</strong>ok the additional step <strong>of</strong> analyz<strong>in</strong>g the Enron Defendants' option exercises<br />
utiliz<strong>in</strong>g the latest techniques <strong>of</strong> option valuation coupled with empirical research on executive<br />
option exercise behavior. By comb<strong>in</strong><strong>in</strong>g these techniques, Dr. Hakala was able <strong>to</strong> compare the Enron<br />
executives' behavior not only with what modern economics would expect, but also with how honest<br />
executives actually behave, and, <strong>in</strong>deed, with how these same Enron executives acted prior <strong>to</strong> the<br />
Class Period. Dr. Hakala's f<strong>in</strong>d<strong>in</strong>g <strong>of</strong> some 120 option exercises dur<strong>in</strong>g the Class Period which no<br />
honest executive would ever have undertaken absent foreknowledge that Enron's s<strong>to</strong>ck was about<br />
<strong>to</strong> plummet also establishes scienter. See Hakala Decl., 25.<br />
The Outside Direc<strong>to</strong>rs either fail <strong>to</strong> cite any judicial support or merely rely on non-b<strong>in</strong>d<strong>in</strong>g<br />
decisions from with<strong>in</strong> the N<strong>in</strong>th Circuit <strong>to</strong> argue that their sales <strong>of</strong> Enron s<strong>to</strong>ck cannot be the basis<br />
<strong>of</strong> a strong <strong>in</strong>ference <strong>of</strong> scienter. The Outside Direc<strong>to</strong>rs all but ignore this Court's pert<strong>in</strong>ent decision<br />
<strong>in</strong> Landry's, which clearly demonstrates that the Outside Direc<strong>to</strong>rs' trades were unusual and<br />
suspicious. See Landry's, slip op. at 25 (<strong>in</strong>sider sell<strong>in</strong>g by defendants nett<strong>in</strong>g over $39.2 million <strong>in</strong><br />
illegal <strong>in</strong>sider-trad<strong>in</strong>g proceeds was unusual <strong>in</strong> tim<strong>in</strong>g and amount).<br />
Further, as demonstrated below, pla<strong>in</strong>tiffs made numerous specific allegations that the<br />
Outside Direc<strong>to</strong>rs sold large amounts <strong>of</strong> Enron s<strong>to</strong>ck, constitut<strong>in</strong>g large portions <strong>of</strong> their hold<strong>in</strong>gs,<br />
<strong>in</strong> close temporal proximity <strong>to</strong> false positive statements. 188, 222, 235, 261, 299. See In re Secure<br />
Comput<strong>in</strong>g Corp., 184 F. Supp. 2d 980, 990 (N.D. Cal. 2001) (f<strong>in</strong>d<strong>in</strong>g circumstantial support for the<br />
<strong>in</strong>ference <strong>of</strong> deliberate recklessness <strong>in</strong> the temporal proximity between defendants' last positive<br />
statements regard<strong>in</strong>g the company's f<strong>in</strong>ancial status and the disclosure <strong>of</strong> negative <strong>in</strong>formation); see<br />
Stevelman, 174 F.3d at 85-86 (sale <strong>of</strong> <strong>of</strong>ficers' s<strong>to</strong>ck <strong>in</strong> proximity <strong>to</strong> allegedly false optimistic<br />
statements was significant <strong>to</strong> issue <strong>of</strong> whether sales were unusual and suspicious).<br />
Moreover, allegations as <strong>to</strong> the suspicious amount and tim<strong>in</strong>g <strong>of</strong> the Outside Direc<strong>to</strong>rs'<br />
trad<strong>in</strong>g cannot be disregarded as a matter <strong>of</strong> law. Whether the Outside Direc<strong>to</strong>rs' sales were unusual<br />
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