please the court my name is cindy speck from san francisco by way of brooklyn new york originally and i represent the appellant's municipal employees retirement system your honor i'd like to reserve five minutes of my time for  rebuttal i'm looking at your calendar this appears to be the super bowl of securities cases this morning and i guess i'd like to start off by saying that the private securities the litigation reform act certainly raised the bar on our pleading but it did not close the courthouse to securities cases the employees retirement system is here this morning to challenge the dismissal of their first amended complaint it's our submission that the district court reversed simply erred under tellabs also statements of current and historical facts which become important in an in analyzing the safe harbor issue when we get to it later the district court erred under tellabs by ruling first that the plaintiffs relied exclusively on confidential witnesses surely we did rely on confidential witnesses but there was a lot more than confidential witnesses in this case for example confidential witness number five set who was a retail sales manager said that orders were placed at  no attention to that he he said that the witnesses reports were conclusionary and then never went on to discuss them witnessed by witness or anything or any way point out how they were conclusory they were not conclusory if you look at c w wait he yet in paragraph sixty four the complaint that excerpt of record eighty seven eighty eight that he attended a sales conference in february of two thousand and two in las vegas in which all of the defendants were present and he said that the vice president of sales said to the group including the defendants look our sales for the second third and fourth quarter of this year are declining seriously and that was corroborated by another witness c w four who said sales were declining in the range of thirty percent after nine eleven and by the end of two thousand and one by fifty percent and contrary to the judge in recent statement that no customers were identified so you got the weight name customers humane calls he name famous where he name finish line he name shoe carnival and by the way c w thirteen corroborated that and name some of those same customers and said that he sent the sales reports that had been accumulated in when the bad news started to come out they started rationing it down they ratcheted down to a dollar forty something in september and a dollar forty one in october one came to the summer night it was a dollar fourteen a huge mess that actually is the thirty percent just that the witnesses were talking about at the front end so it fits together the reports of the witnesses the facts on the ground the performance of the company  and its skin was it was an elaborate scheme they thought they knew what was what was about to happen so they try to say that now it's very important you hold on to the idea that they know for months in advance of shipment are placed or not let me ask you this question if you abstract or took away the two confidential witnesses would you have a suspicion right between what happened in february and april statements or in other words are you dependent upon the two confidential but but not my case is not exclusively based on those witnesses there's more to this than that no i understand that but if we could focus on a confidential witness or maybe you can clarify for me whether there really was sufficient identi that that basically is what we have to focus on right judge and i think that but let's take c w wait for example he was a regional sales manager his report says that he attended the conference  which the vice president of sales who was again a five by name joe philips made a presentation to all of the sales managers and sales representatives and of the fans they were all there and he and he described what what vice president philip sat and that was that sales were down were going to be down for the second third and fourth quarter based on the sales reports that had been developed for the conference c w fifteen who was  that sales reports were prepared for that conference and that they were distributed to the defense in advance and showed the trend in sales at that time the you said fourth what the contents of those reports w significant fact that i that i found as i was rewriting the record in the briefs if you were turn to page eighty eight of the excerpts of record and in the last sentence of paragraph sixty four c something if he is willing to step step up and say that they took videos of all of this stuff so he if he is off the mark it's all on tape and that goes to  been reduced what they said was confirmed by what ultimately occurred in the in the production r r my friends will call that fraud by hindsight fraud by hindsight is not always a bad thing judge jones in the fifth circuit recognized in the plucking case and the second circuit and scholastic recognized that what happens after the fact can often provide inferences about what happens during the class period so true prior to the class period can inform what's going on in the class period the fact that some of the witnesses most of the witnesses were present at sketchers during the class period a few left just before but just before it doesn't matter in this case because four months before the class period is the relevant time when orders are being placed with this company now before judge block asked me the question i was about to describe a second link between the these heroic forecasts that that through the you can consider adverse differences it confirms that recognize you have to consider the entire complaint collectively tellabs ratified that so that the in that respect the law is the same but what it changed was it relax leave you to make that determine it is for you to make that determination you can't you should rule that under her and tellabs and and and dowel and oracle the judge aaron as a matter of law and that this complaint can go forward that's what you should do in this case it strikes me that it's not in the interest of judicial economy to rewrite the law send it back to the district co and have him fix it he had the the guts of the law in damper that we have him tell us to send it back now with the standard the only change in the standard is we don't have to show the most plausible seems to me to be not a good use of judicial resource and if he gets it wrong the second time will be back doesn't make sense you should decide it as a matter of law that's what the novel review i think and it entitles you to do and i think this case has been kicking around long that's what i'm going to that's exactly the point lies that material well there's nothing wrong with shifting the sales what's wrong with it is what is the explanation given shifting the sails is perfectly alright but they said it was requested by their cost emerged and that the at it and in fact what was happening was it was an orchestrated scheme that went back to the february conference in which they decided to offer price concessions and terms to pull those sales then to cut to cover the fact they weren't going to make the second quarter otherwise and six witnesses six witnesses interlink  customers like macy's who expected early shipment confirming that none of these customers requested it confirming that they were told to offer the concession business also i guess i'm having a hard time understanding let's assume all this was done that the overstated forecasts were not correct it showed knowledge of the fact that the fact that the performance of the company was going down and by robbing the third quarter to fix the second they delayed as a recording of the end of the inevitable do you think that that's what makes that part of the fraudulent scheme concealing the the fact that the forecasts were failing i case of revenue recognition it's not a case of any funny business going on at the company it's whether or not to that's of projections were false and when made and that they were knowingly false when made when we have forward looking statements that brings into play the safe harbor of the reform act and the space harbor has two very important problems to it the congress put the safe harbor there because congress encouraged companies encourage businesses to make projections this congressional act constitutes to me this fraudulent intentionally made falsely made and you know it's false in the time it's not a meaningful cautionary statement to me it doesn't apply they have no evidence of that there's nothing in the record the second projections and said number one they were accompanied by meaningful cautionary language which this record did not simply rely upon the confidential witnesses the district court looked at the warnings looked at the f t c filings looked at the were particularly tied to you that you have to read the whole package you have to read the whole package understand didn't read the whole package when he ruled the plaintiffs also those even if you don't believe that the statements were meaningful and cautionary which found they were then you have to look and see whether or not there was actual knowledge of the cost of the the time they were made at that moment it's very important that there are the reform act also to set forth to promise for reasonable this is something which is exactly this reform act says that the determination shall be made on a motion to dismiss has to be made so it's never a question for a jury to terminate it could be but this is when we could be of the plaintiffs are able to show we could make able to convince the court that these statements were not meaningful i think would be a rare instance your honor but it is looked at as a threshold question and congress said we want to decide these issues at th that are different from every other case in the ninth circuit said it's curious cases are an unusual deviation from the usually lenient requirements of federal rules pleading number one they have to state their case  with particularity the fraud with particularity and the basis for the lie the statements were false when made and secondly and more importantly in directly applicable here is they must state with particularity the facts giving rise to a strong inference that the actor acted with the required state of mind here that's actual knowledge the test is not whether or not it's a sham complaint the test is whether or not they made a strong inference requirement i don't review the district court written opinion and look and see whether or not it agrees that the statements that were made were meaningful cautionary directly lined up with what happens here and we have to be satisfied that the statements are false so yes right right and false at the time the evidence of falsity here zero there is no for what they have to prove it is not the sales meeting in february in which someone said go out there and sell more shoes what they have to show is that in the april statement was made and when the july statement was made that those projections were false and that the plaintiffs or that the defendant knew they were false that they either had some sort of false projections and real projections or some documents or corroboration this is the time those statements were that is critical here they have no particular factual allegations that effect no internal reports no conflicting projections not one witness says you know when they said that when they gave those a p s projections in april he knew it wasn't false he knew it wasn't true they have none of that they have a sales meeting in february in which a sales person tells the sales group go out there are still more sure the trend is coming down so more shoes that's not fraud they went out and they sold more shoes whether they give customer discounts that doesn't matter that happens in business all the time go out there install more shoes and you know what happened after the february salesman in las vegas that they've got all these what this is what tended the company exceeded its projections for that second quarter that's fatal to their case as well and as the district court said there's no connection between what happened in las vegas in february and the statement that was made in april or in july that too is fatal to their case the specific warnings here of the you don't get that feel from the supreme court's decision until at least i didn't of course write it of course that's not impossible if they have someone who could say not that there's a sales and just get here we go through each allegation and sort of like divide and conquer it rather than taking issues that is you know and i thought once there in a very careful way if they had anything close to two witnesses or a document or a suggestion or a hint that the projections were knowingly false at the time they were made then we might have something but they don't have anything that approaches that your honor none of their confidential witnesses help them on that there and just that we're clear we're not arguing that they have not identified the around the world or based here in los angeles they have operations around the world they would deal in a very competitive market we've laid out who their competitors are as laid out in the rest of the disclosures they depend upon people's fashion tastes and how one could be sued for fraud when you make a statement that says here's what we think our projections are going to be going forward there's nothing to show that fashion industry it's not exempt but it's but investors know when they're investing in a fashion company stock that fashion tastes change and that's what investors know investors can gamble on that and they can say you know what we think they've got a good brand maybe nike's got a good brand middle invest in nike mabel invest in a dataset maybe one that's somewhere else because we think they've got a better br let's look at their confidential witnesses ok they talk about confidential witness number eight we spoke about he was the one at the las vegas sales conference does not say that the projections were false when made and in fact after that las vegas sales conference the company exceeded the estimates confidential witness fifteen didn't even work at the company going the last period he or she was obviously in no position at all to know whether or not when this the projections were made they were false at the time they were made we have other confidential witnesses who worked during starr months specified time during the class period none of them can give rise to the strong inference required by tell us that's where there's a disconnect they could tell its case says there is a way to play this if you plead a plausible and cogent inference you'll survive but it wasn't even close here and whether or not the garber case said that the tie no we're coming straight to the ninth circuit the court did go through the television alice's it didn't say it was closed the didn't say there's a tie that now goes to the defendants if it looked at all of these confidential what this is and says they are not in a position to know whether or not someone is a vice president retail says nothing about wholesale they have one witness who says that you sure lines the energy and retro they were able to identify those were having disappointing trends and this was confirmed back in february the las vegas sales conference has one thousand lines of shooters the fact that two might have been lacking does not give rise to strong inference of fraud just simply cannot finally your honor the shift of the twenty million dollars from the third quarter to the second quarter is quite frankly a red herring this was fully disclosed when the company came out with its results it said we had better results this quarter because of the twenty million dollars that were slated to be delivered in the third quarter and now we take them in the second quarter back run through this again fully disclosed in the holistic record is that summer there was a threatened and then in fact a court strike customers might want really delivery there's no allegation of these were not legitimate sales this is not a channel stuffing allegation where we get sent things out early and you know they're to come back but you make your quarter and the if you rob peter to pay paul none of that and the fact that the customers are able to take early delivery helps the company because now that they've got the product on the store shelves customers hopefully are buying them and then reordering them that's a good trend that's what businesses do and there's no allegation at all that there was any scheme that this twenty million dollars in the summer that was fully disclosed was part of a scheme to defraud and went back to february sales meeting that they've videotaped wonders with a videotape their so called scheme there's absolutely nothing wrong with selling as many shoes as you can that's what the company does that's what the shareholders want go out there and sell more shoes and that's what they did and whether or not the implication as just black pointed out is the who requested the early delivery is of no moment they were accepted it's very difficult in the conversation that salespeople have their customers all the time about who initiated the prospect to make the to make the sale make the delivery but even if that was initiated by the company that still shows demand for the product if there is no demand for the product you know i don't think it's that he's going to argue otherwise he's not suggesting anything other than they say something factual that isn't true i think that's what he's writing and he's in his point he is that cannot be disputed can it be disputed well the fact that he says that is false is that the company said that this shows heightened demand for our product yes and from that he says well you imply from that that the customers asked for the early delivery instead of the company the fact that the early shipments were accepted by the customers and not return to me shows demand from the company demand from the customer so idea ship them now pay for them and that shows earlier demand it shows increased demand it's not a false statement especially with the looming ports right and again they have to show a compelling inference little bit in that rare case where some court i've never seen this case where the court says this is an absolute tie it's a statistical tie and we're going to give that tie to the defendant because the damper panel said that's what we should do i've never seen that case in any of the cases are either in the ninth circuit around the country this judge did not find that was a close call this course a look at these facts and say this is not a close call place and there's no allegation that those statements were knowingly false at the time they were made nothing not a scintilla of evidence no suggestion or hint they have to piece things together from a federal sales never know whether or not the projections were were false when made they have people working in retail division how would that person know that these were false when made if they had some of those it was that the company said you know what they made those projections i know they had contrary projections in their possession and that would be a case in which the plaintiffs would prevail we don't have that here we have nothing like that all we have is innuendo and it is not cogent or compelling knew it was false that forgets what the supreme court said and huddleston twenty five years ago circumstantial evidence is the way you plead fraud you don't have confessions you don't have inside witnesses saying we sat around i'm the vice president sat around the boardroom and all those guys knew it but we have there's a series of witnesses who were in key places and who said that  excerpt of record one forty six this is a closely held family corporation president greenberg greenberg vice president greenberg c f o weinberg four guys ran the company and by the way shortly after they raised the forecast from a dollar fifty nine to a dollar sixty nine guess what they did they sold thirty three point six million dollars worth of stock that counts in the sea and her equation now let's talk about this big deal safe harbor point it's they sold one point five million shares during that class period at prices of twenty to twenty two dollars a share prior to the class period one guy sold nine hundred thousand of its shares for three point one million so the price was a lot lower it makes a difference that you inflate the stock and sell high as compared to selling only forty or fifty percent of that amount in the previous period and during the class period they sold ninety five percent of insider timing here there's coordination of sales and it all fits together with the other facts i want to spend the last two minutes on the safe harbor in these press releases they list the bunch of risks and  they say if any of these risks occur are only as might be lower one of the risks they they'd list is if far back to school sales are low or it might affect our earnings the problem with that statement is when you're told at a sales meeting that your sales are declining you have no business increasing your your projections and then worse to get their current statements sort of to dilute if not to drown out the warnings what they said i know that we will exceed our sales levels we have room we have increased sales with sales increased sales plans see from a number of our largest accounts we are we are very well positioned for back to school selling they said things that connor acted the safe harbor warning in a way that influenced the analysts who who who stayed within their analyst reports that management has said that they're getting more sales from their largest customers but that witness are saying that the customers are reducing their sales or taking concessions to pull in earlier what are the price concessions do they cut into earnings because you can't make up as much profit if just put together a country the council of view that this was a pattern of fraud when which all of these pieces were designed to do one thing delay delay delay the revelation of the problems that the company was having and in that delay the the famous made money and cushion their losses the plaintiffs who paid the high price during the class