Software giant Oracle released its newest product, the 11i Suite, in 2000. The company issued press releases and disseminated other information to the public that touted the software as a significant achievement that would enhance its revenue. Over the next 12 months, executive management continued making overly optimistic forecasts about the software and earnings. During that same period, Oracle’s CEO, Larry Ellison, sold nearly $1 billion worth of his personal stock in Oracle. Shortly after Ellison’s sale was completed, Oracle released negative news about earnings and it became obvious that the 11i Suite sales were substantially below expectations. The stock price dropped sharply.

CASE QUESTIONS

1. Does the timing of the insider sale and the release of the negative earnings statement constitute sufficient scienter to clear the PSLRA’s scienter hurdle?

2. Who prevails and why?