Gaming Company’s Regulatory Delays Insufficient to Give Rise to a Securities Fraud Claim

The US District Court for the Northern District of Illinois dismissed securities fraud claims against WMS Industries (WMS), a gaming and slot machine manufacturer, and certain of its executives, holding that a would-be class representative failed to plead with the heightened requirements prescribed by the Private Securities Litigation Reform Act. WMS issued guidance predicting growth in earnings and margins in fiscal year 2011, despite sluggish sales in the industry. The growth was based on development of a new product named “WAGE-NET,” as well as an effort to implement operational improvements to WMS’s quarter-end sales. However, WAGE-NET received only limited regulatory approval, ultimately did not launch, and the operational efforts were not undertaken. The court dismissed the proposed class action with prejudice, finding that the plaintiff had failed to demonstrate with sufficient particularity that anticipated launch statements regarding “WAGE-NET” and operational improvements were false at the time they were made. The court also held that the plaintiff had not pleaded scienter with the requisite particularity, holding that the unobtained regulatory approval for WAGE-NET, lack of field trials, new products that did not launch and operational improvements that were not implemented, absent more particularized facts, did not warrant the scienter inference urged by the plaintiff.

Conlee v. WMS Industries, Inc., No. 11C 3503 (N.D. Ill. Apr. 24, 2013).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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