Opinion ID: 785790
Heading Depth: 5
Heading Rank: 6

Heading: Absence of Inside Sales

Text: 74 The Complaint includes no allegations that the Individual Defendants ever took advantage of Intrenet's purportedly inflated stock prices by selling shares during the class period. The Individual Defendants point out that the allegations of fraudulent motive which courts most often recognize as support for a strong inference of scienter are allegations that insiders sold stock. Indeed, we mentioned in Helwig that insider trading at a suspicious time or in an unusual amount comprises one of the fixed constellations of facts that courts have found probative of securities fraud. 251 F.3d at 552. Conversely, courts have explained that the absence of inside sales dulls allegations of fraudulent motive. See, e.g., In re K-tel Int'l, Inc. Secs. Litig., 300 F.3d 881, 894 (8th Cir.2002) (evidence that the individual defendants abstained from trading may undercut allegations of motive); In re Northern Telecom Ltd. Secs. Litig., 116 F.Supp.2d 446, 462 (S.D.N.Y.2000) (The absence of stock sales by insiders, or any other evidence of pecuniary gain by company insiders at shareholders' expense, is inconsistent with an intent to defraud shareholders....Even where company insiders sell stock during the class period, scienter is not necessarily inferred.) (citing Kalnit, 99 F.Supp.2d at 337 and San Leandro Emergency Med. Group Profit Sharing Plan, 75 F.3d at 814). 75 However, we have never held that the absence of insider trading defeats an inference of scienter. Cf. Hanon v. Dataproducts Corp., 976 F.2d 497, 507 (9th Cir.1992) (scienter can be established even if officers who made misleading statements did not sell stock during the class period). What is more, Plaintiffs' motive allegations in this case are not based on a claim that the Individual Defendants sought to personally enrich themselves through sales of their own stock. See In re Nuko Info. Sys., Inc. Secs. Litig., 199 F.R.D. 338, 344-45 (N.D.Cal.2000) (when the complaint did not assert claims of insider trading, the absence of defendants' selling or trading has little bearing on determining whether plaintiffs have adequately pleaded scienter). We also reject the Individual Defendants' contention that their purchase of shares during the class period refutes any inference that they knowingly or recklessly misled the market to increase the stock's price. Plaintiffs allege, and Intrenet's 1999 10-K suggests, that the Individual Defendants bought the stock to infuse cash to the Company as a condition precedent to obtaining a new bank agreement. For these reasons, the absence of stock sales by the Individual Defendants works against but does not conclusively defeat an inference of scienter. 76