Opinion ID: 198674
Heading Depth: 3
Heading Rank: 1

Heading: Channel Stuffing

Text: 96 Channel stuffing means inducing purchasers to increase substantially their purchases before they would, in the normal course, otherwise purchase products from the company. It has the result of shifting earnings into earlier quarters, quite likely to the detriment of earnings in later quarters. There is nothing inherently improper in pressing for sales to be made earlier than in the normal course, and we do not understand plaintiffs' complaint to make any such claim. Plaintiffs make use of the channel stuffing allegations in a different way. They say evidence of channel stuffing supports their contention that management knew that revenues during the Class Period would be low and attempted to hide that fact by shifting income through channel stuffing (which remained undisclosed) and by artificially inflating income through improper revenue recognition. In this context, the channel stuffing evidence has some probative value. 16 But that value is weak. Unlike altering company documents, there may be any number of legitimate reasons for attempting to achieve sales earlier. Thus, it does not support a strong inference of scienter.