production facilities in shanghai or made without science that ruling was error for three reasons he didn't he didn't find that i believe he found that there was insufficient proof that they were made with science into fiction pleading no facts to infer that they were made with science or ok you are right i stand corrected that error that ruling was error because for three reasons first and while this court is very clear that executive position alone is not enough the first reason is the executive position of defendants in blue and white combined with the scen of the shanghai production facilities two diodes a massive quantity business plan made it crucial to the success of the business that those facilities be operating efficiently and keeping the gross profit margin up number to an inference of sandor can be drawn from the fact that diodes without permission or requests from its customers began shipping orders early during the class period in order to be able to recognize revenue early which would then serve to disguise the actual munition in the gross margin of gross profit margin and then last the totally out of character and officiously time stock shortage wouldn't would've been counter counterproductive to the scheme if there was one year it would kind of kick the problem down the road because what would happen would be that allowing them to ship from the actually said as they ship from finished goods inventory so things that they had a ready made they shipped from them and then they were able to recognize the revenue from that and then that would make their gross margin appear to be more stable than it would be otherwise if they were if they were not doing so it's basically a kick the can down the road type of theory it's very similar to what judge posner was talking about in the tel labs case where he said that sometimes people will do things in the hopes that that the situation will right itself well that's pretty much what happened here and in addition to the fact that they search it shows it to happen ok in addition to the fact that these sales help to mask that problem they also were themselves very suspicious of the cooperating witnesses particularly witness number seven pointed out that least one employee was instructed to say that we actually did have for that they did have permission to do these early sales well i have serious problems my notes may be poor here but i had something about thirty six point five percent and they figured it was going to drop by a pointer point and a half and it did and then in may i believe it was they figure they predicted it was kind of drop another point or point and a half and it did so if these additional labor problems that you're talking about were material how come they wouldn't have resulted in a larger drop in march actually the drop in gross margin was going to be more substantial than we had predicted but getting back to the materiality i think that under rubenstein that when you have a stock drop that's presumptive evidence of materiality and in this case we have that both after the after the may statements and then after this june corrective statement that we just that was just addressed there the stock drops ten percent after the may statements and then it dropped fourteen per cent after the after the junes well you know the ten b five doesn't require the company to always be on an up or up to number one it just says that the company has to describe it court has approved in rubenstein in addition there's the seven circuit case asher that had a very similar situation where the defendants were saying you know look at our projections and the seventh circuit held that that was a jury question like that always depends on the surrounding facts and circumstances and in the tel labs case it is also said that the court has to take account of contrary plausible inferences and the fact is for instance the district court slightly misstated the the timing of mr lose sales they were took twelve point five percent of his stock holdings in terms of you can say it's a lot but it's it still leaves him on the hook and  risk for eighty seven and a half percent at least of his investment in the company well you know with respect to the stock sales i have a couple of responses number one in this court's cases this court repeatedly expresses this that we have actually not the disjunctive situation here we have both of them and i think that's the central labor's case that said that sales are out of line with prior trading practices or at times calculated to maximize personal profit but you have to you have to acknowledge i mean there is still relatively speaking yes he sold shares but he didn't you know you can argue about how many shares he sold and what significant it is but your whole case turns on these got a few points with respect to that well let me just ask you is there any evidence in the record because a lot of this appears to come off the shop floor in shanghai and i'm just sort of wondering to myself are all these  abused and poorly paid employees also bilingual in english who translated what is there in the record that suggests that these whatever these people were saying in chinese on the shop floor has been accurately translated for purposes of pleading in the united states well your honor i think i'm sure that there is an investigator in the terp or involves again i actually wasn't involved in the research of this particular complaint but i think that at the pleading stage here either tell us what we're entitled to a presumption that these allegations are correct well no you're not you're only in touch with a presumption if there is adequate circumstances in terms of the person's you know identity placement within the organization job duties and cetera and it seemed to me that at least as regards the once in the house in dallas might be a different idea but and those are mostly relevant as to the early shipment but with the i was a production line supervisor in shanghai what does that mean did he produce what did he produce the last few widgets on whatever the on these produce the packaging did he supervise one person or thousands of people how do we have any how can you extract only from one or two people who undoubtedly are basically chinese people into the entire labor situation of the company well we're not talking about the entire labor situation that you know you talk about its biggest plant with two thousand employees inching that scripture and the reason that i think that these informants are reliable in these circumstances is that they were people who were actually on the shop floor so all the changes in policy that diode's undertook they would have been affected by them so they would have seen them there when their colleagues go different jobs they would have seen that as well because they would see the other machine over here is empty you know that person is no longer here and the district court actually found that with respect to these statements that a lot of these witnesses were making statements that people in their position would in fact know and that was at page six forty two of the way that this court said facts that anyone working in the conflict who witnesses perspective positions would likely know are the ones that we've pleaded so the district court found with respect to a lot of these facts that are not axes or pleadings and we review the case de novo and so we're capable we and then we are not bound by the district court on his interpretation of the reliability other jobs of the vigilance had taken that was with just a court actually objected to but the rest of the stuff the district court that does not appear the objected to now i would also point out that these statements have cross corroboration this is the last case of a criminal case i was a public defender for a long time this was the cause something employee problems would you not well know because we have two claims here we have the fact that they didn't reveal the scope of their shortage and they didn't reveal the cause now the scope is something that's totally independent from the reasons that people left and they did not disclose that scope when they were asked if there are if there was any abnormal drivers to their shortage they didn't say well actually a three hundred people left in the beginning of february as two of the confidential witnesses said so there's the scope issue and then there's a separate issue with respect to the reasons so if we wouldn't need to prove an actual causal effect packaging in shanghai as as ours already indicated the packaging was what went on there that's one of the most crucial things in diodes business because they've they basically tout that themselves as their competitive edge against other other companies and they don't sub contract that function out they do it themselves so it's particularly important for them and provides evidence that shows with water allegations that show while blue and white be putting particular attention to what's going on in the shanghai facilities these items are mass produced you know the packaging involves getting you know the plastic around these items that are i think five millimeters i think we said three hyphens in the in the br so it's extremely painstaking work and individuals who do this work take a lot of training six to eight weeks just to be sixty or seventy percent of the experienced worker and then six months to become proficient so it's devastating to a company like diodes to lose a significant number of workers and we've alleged that they had six to seven hundred packaging workers that they had to replace during two thousand and eleven thousand workers total when we first backwards from the end of two thousand and eleven with the got you because at one point you had asserted there was one hundred nearly one hundred percent turnover on the shop floor body end of two thousand and eleven well obviously they couldn't have predicted that no i understand that you know i think with respect to the february statements you know the confidential witnesses two of them indicated that three hundred people had left in the beginning of february but that's when the chinese new year is so if they all go home you know back to the farm for a new year how do you know they're not coming back well that what happened was is that before the chinese new year diodes issued a policy saying they were going to give people leave for good for the chinese and i understand that but again nobody has ever accused china of having the most friendly employee friendly labor policies in the world and we're not in a position it seems to me the court tarn in a position to just accept that suddenly there's tremendous labor unrest and people are not going to come back because the company says you're going to work harder for you late or have one day let you see what i'm saying i understand your honor and we have an allegation saying that three hundred people left in the beginning not left for chinese new year but quit in the beginning of february of two thousand and eleven that would be before the first set of statements and then once the may statements you know they've continued to have problems they continue to lose employees throughout that period of time i think in plock in this court pointed out that when there was a particularly significant disaster it's fair to assume that the signs of that preceded one of the disaster occurred that's with respect to the  cancellation of the contracts in those cases here we have said a thousand people in the first half of two thousand and eleven leaving so it's fair to assume that before those made statements were made that they continue to have this problem that's culturally  ignorant i mean if it were an automobile manufacturing plant happen up in you know michigan or hughes to a company in houston that either has a labor are we know what the background labor situation is i mean i just think and even though you know there are people of the same nationality here i think you're making a great leap when you in fire that the working conditions the cause and  context i can't cite a case to your honor i would say though that these individuals the witnesses are the people on the shot source of their best position to be culturally sensitive as writers pointed out and also again the scope of the of the labor really have here is a company that did make disclosures about labor problems i'm sure you know it disclosed as judge jones referenced the impact those labor problems would have on the company's business pre announced it took great pains to make those disclosures precisely to alert investors that there would be an impact and in fact the impact on the company was exactly as predicted these three hundred folks who live well if in fact they did leave to go to different factories that were being built because of the chinese five year plan in the countryside then in fact it was disclosed what we have here is not a situation of a false the cause of any disconnect between reality and what was represented to be reality and in fact there is no daylight as to the financial impact on the company it was exactly as predicted to the extent that is scope i'm not sure what scope means here but to the extent scope means financial impact and there's no daylight to the extent and plaintiffs in the or to the extent duration is at issue then yes you have some daylight there so then the question is do plenty of spleen any facts to say that the delay the one quarter delay in resolving these labor problems was due to those company specific causes as opposed to the causes that were disclosed and by the way again our view is that those company specific causes  embedded broadly in what was disclosed so for example the company has labor problems so they want to try to push the workers to work harder that results apparently allegedly in some people leaving how is that materially different from what was disclosed particularly chinese new year people are coming back imbedded in there is they must have gotten may have gotten jobs other places and that factory the chinese government is pushing to have sac shop floor who say these three hundred people presumably anecdotally they would possibly know that there is exactly three hundred where they going where are they going where they're not going back for me how would they have known all of this and that goes to the reliability of the confidential witnesses as planned so in the absence of those dots being connected that these companies specific reasons were the difference between what was  that information specifically the information of the difference in the minds of loop and want nothing nothing is there this is like to use the borman case for example one of more recent cases more recent from  nine where there was a reversal that my goodness you had company documents you had specific witnesses that put in the minds of the speakers contrary directly contrary evidence as compared to what was disclosed here you just don't have that only addressed opponents first second and again there's a c w disconnect here we have four confidential witnesses who talk about these mormon versus u s unwired larman mormon right i'm afraid of that one because i think that shows a an example where this court has held that in fact sometimes plaintiffs can plead but boy does that show how much detail really does need to be planted and i think shows in sharp relief how much how little there is here and of course the in the an electrical versus shark case jess decision there lays out of course the law here but also between solving the problem by the second quarter as represented versus taking it taking one more or the only thing that i would really address in addition with two other things we have the stock sells there's no filed almost expiration of the statue of limitations and what we know happens is that folks will look at stock sale records find some that are bunched up look for a stock drop shortly thereafter and then build a case around so i don't think we should be too surprised that we see stock sales in any case because that's kind of how it is get built but there's no question there's a timing issue on the stock sales they are during the class again to get it to intent isn't there if you come across any other cases that have confidential informants in other countries none that i'm aware of are more important i've not seen a case where a court leap of cultural knowledge that i don't think we're quite i don't see a word to me that certainly are that that may be the case i think for our purposes of respect to the process and where we are in the proceedings and what was  i would simply say the key point is the lack of any reliable visibility that these folks would have missed to these broader trends to be able to identify those company specific reasons as to the cause you don't have a local h r manager in shanghai to correct your order and plant manager or the deputy plant manager or his or her boss employee you know and that's where we have i think the major disconnect  sort of language that might suggest said even though the company accurately predicted it declining these these declines you could still have basis for pleading  by any stretch companies can't mislead what we're saying here even with true numbers what we're saying here here though is that these this complaint doesn't have those additional details to get you from these numbers are accurate yet somehow we're hiding something when the company did just close we're having labor problems in china major causes the causes from our viewpoint are china's new five year plan in the chinese new year those causes are going to hit us by certain amounts and they turned out to be true the only again the only daylight is the duration we're off quarter dr  off a quarter in his prediction as to when this would get resolved and unless the plaintiffs can say the reason for that being off the quarter was these three hundred people choosing to go through predators or not be happy with the bonus counteracts the strength of the inference of cmdr so we have that the pole it's the judge below i think also observe that there was something contradictory there during a company having production problems a under pleading standard that requires the court to consider what is a more plausible or more reasonable more cogent compelling inference and for a company that actively discloses its problems with the chinese labor market to then try to act inconsistent with that by these problems it doesn't make sense and again in the eyes of the c w says the reason they did it was to try to round up revenue large number of your employees at the efficiency matter sort of being claimed in the complainer correct it would take longer where if it's just a chinese new year normal social problems in china that sort of impact on the work place might not have occurred roulade maybe under under bell atlantic and that line of cases reform act requires more requires the players to plead those facts to get you over that hurdle it does not allow the court to just draw the there were any abnormal drivers they didn't say yeah we lost three hundred people who quit in the beginning of february as we have alleged so when i say scope that's what i'm talking about and they're two separate claims they never disclosed the number of people that they were missing and they never disclosed their additional company specific reasons that led to led to the people leaving but they're mutually independent so the fact they didn't disclose the number of people who were gone i e how short was a labor shortage is in itself a claim and they never disclosed that now with respect to the disclosures that mr city was was touting their first set of disclosures in february were not material disclosures about the other compan problems in the stock actually went up fifteen percent after their february disclosures when they when they made it that they needed more time to train then that's when you know they had their first stock drop and then again in june when they said that their effect on the gross margin metric would actually be much worse than they had previously said then the stock fell again your brief talks about however the disclosures you have to say in the february disclosures are bad because otherwise you know i have a natural and friends from mr lewis sales so you have february and you have made but i didn't think your brief at least there's not a subhead about chain disclosure that was with the last stock drop so as the information filtered out in may and then in june that's when the stock dropped when they didn't tell any of the the truth in february with respect to the scope of their actual problem then their stock price actually went up and again in may they said the reason that they're having trouble is they need more time to train nothing about the fact that they lost a thousand people in the first half of the year they needed six or seven hundred production workers they  lost three hundred in the beginning of february you know those disclosures don't speak to the number of people that they lost throughout the period of time i'd also like to briefly touch on the the  early sales without permission it's not just the fact that they sent out these orders early they went out and looked for them they had their own employees looking for orders to ship out early that would involve these you know very basic commodity like chips and sent those out they caused their customers to get angry one of them actually threatened litigation one of their employees was instructed to lie to other employees about the fact that he that he did have permission and again i mean they say them a thousand customers i think it's a thousand maybe more well guess what they were going to their biggest customers they could ship their biggest orders so they could conceal the maximum about of wind court found that this court in south and found that a sixteen percent amount of sales was suspicious which is pretty much in the same ballpark as mr lose so i believe that their friends are saying it could be drawn from that as well  have no further questions else do you know of any other case that involves confidential witnesses on the shop floor i do know your honor i think i have some homework to do just wondered