Opinion ID: 198674
Heading Depth: 3
Heading Rank: 2

Heading: The Warehousing Allegations

Text: 93 The warehousing allegations remain. In essence, the complaint asserts that at some time before the Class Period, the company made a phony sale or sales and caused to be booked as goods sold certain product that was shipped to a warehouse and not to customers; the company then recognized the revenue from such phony sales. After a period, the product was sent back from the warehouse as returned goods. The allegations state that Robert Casa, an employee who refused to sign for the returned product and complained about the practice, was fired. If true, such practices by a company are very serious. See United States v. Bradstreet, 135 F.3d 46, 48 (1st Cir. 1998) (affirming a criminal conviction for, inter alia, knowingly falsifying [a company's] books and records in an attempt to conceal [securities] fraud). 94 The complaint is deficient in not identifying when this took place. The complaint is specific only in saying this occurred before the Class Period. The complaint alleges, on information and belief, that the practice continued into the Class Period but provides no specifics about why the practice is thought to have occurred during the Class Period or why it caused harm to plaintiffs. The defendants say the temporal lag means the allegations are irrelevant and should be disregarded. The allegations are not irrelevant -- evidence of past practice may indeed be probative of present practice. But there is scant else from which to infer that this was the company's practice at any pertinent time, and the allegations are not enough to support a strong inference of scienter. See Lefkowitz v. Smith Barney, Harris Upham & Co., 804 F.2d 154, 155-56 (1st Cir. 1986).