The 9th Circuit decided that plaintiffs stated a claim of securities fraud for defendant's rosy reports of high "backlog" that failed to disclose the existence of multiple government stop-work orders on the very contracts making up the backlog. The Appellate Court also held it was proper to infer that the defendants knew or recklessly disregarded information about the stop-work orders because of their high-level positions with the company, coupled with the substantial impact of the stop-work orders. Finally, the Court reversed the District Court's finding that Defendants' backlog statements were entitled to protection under the statutory "safe harbor" for "forward-looking" statements. 15 U.S.C. Sec. 78u-5(c). The 9th Circuit held that backlog is "a snapshot of how much work the company has under contract right now, and descriptions of the present aren't forward-looking."
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