The US District Court for the Western District of North Carolina dismissed a shareholder securities fraud claim against CommScope, Inc. and its officers, holding that the company’s alleged misrepresentations constituted either forward-looking statements or were not misleading. Plaintiffs alleged that CommScope—a communications infrastructure corporation—misled shareholders by forecasting unreasonable sales growth in 2008, based on internal sales budgets that were “impossible” to achieve. The court first considered whether trades made by individual defendants during the class period could be used to prove scienter, when those trades were made pursuant to a pre-established stock-trading plan. To rebut scienter under SEC Rule 10b5-1, the defendant must demonstrate good faith. However, because a good-faith inquiry involves issues of fact requiring additional evidence from defendants, the court deemed such inquiry premature and instead focused on class-period stock sales by the defendants. The court further held that CommScope’s statements about revenue guidance and anticipated earnings were “forward-looking” and accompanied by meaningful cautionary language, and thus entitled to the Private Securities Litigation Reform Act’s safe-harbor protections. Finally, the court found no connection between CommScope’s ambitious internal budgets and those forecasts presented to investors, noting that “ a company may presumably set internally unattainable sales goals for any number of other reasons, including motivating its sales representatives to strive for those numbers.”
Electrical Workers Pension Trust Fund of IBEW Local Union No. 58 v. CommScope, Inc., No. 5:10-CV-00062-RLV-DSC (W.D.N.C. Aug. 6, 2013).