Opinion ID: 777054
Heading Depth: 3
Heading Rank: 2

Heading: Stock Transactions

Text: 21 Plaintiffs also allege in their complaint that securities fraud may be inferred from Gantz's sale of 10,000 shares of PathoGenesis shortly after the company announced its 4Q98 earnings. They contend that Gantz's sale of PathoGenesis stock gives rise to a strong inference that defendants knew that their public forecasts during the class period were knowingly false when made because Gantz: (1) had not previously sold any shares of PathoGenesis common stock; (2) intended to sell more shares of PathoGenesis common stock than the 10,000 actually sold; and (3) sold his shares after he and Meyer allegedly made inaccurate and misleading forecasts. 22 We have previously held that a strong inference of fraudulent intent may occur when an insider owning much of a company's stock make[s] rosy characterizations of company performance to the market while simultaneously selling large percentages of his holdings. Ronconi, 253 F.3d at 434. But that did not occur here. The insider sales are not substantial in the aggregate compared to the market, only Gantz and not other insiders sold during the class period, and the sales by Gantz were only a small part of his total holdings. Gantz's sales of 10,000 shares of stock, a tiny percentage of his holdings, does not support any inference of impropriety or fraud. As we explained in Silicon Graphics: 23 [I]nsider trading is suspicious only when it is dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from undisclosed information ... Among the relevant factors to consider are: (1) the amount and percentage of shares sold by insiders; (2) the timing of the sales; and (3) whether the sales were consistent with the insider's prior trading history. 24 183 F.3d at 986 (citations and internal quotations omitted). In this case, Gantz's sale of 10,000 shares constituted only 1.4% of his total PathoGenesis holdings. The sale of such a small percentage of total holdings does not give rise to the strong inference of scienter required by the PSLRA. See Ronconi, 253 F.3d at 435 (suggesting that sales of 10% and 17% of an individual's holdings were not suspicious); Silicon Graphics, 183 F.3d at 986-87 (transactions of four of six corporate officers who each sold less than 8% of their total holdings were not suspicious). 17 Gantz's sales as alleged can equally or more likely support the inference that he was engaging in modest diversification. 25 We also conclude that the timing of Gantz's stock transactions was not suspicious. Officers of publicly traded companies commonly make stock transactions following the public release of quarterly earnings and related financial disclosures. That Gantz would sell an extremely small portion of his total holdings following the positive announcement of PathoGenesis' year-end and fourth quarter earnings does not support an inference that Gantz knew or should have known that the optimistic reports of TOBI's projected growth were false. See In re FVC.COM Sec. Litig., 136 F.Supp.2d 1031, 1040 (N.D.Cal.2000) (officers' sale of shares following press release announcement of anticipated increase in quarterly revenues is not suspicious and does not support inference of scienter). 26 That no inference of fraudulent intent arises from the timing of Gantz's modestly proportioned sales is further reinforced by the fact that Gantz was the only insider to sell PathoGenesis common stock during the class period. All other directors and officers fully retained their holdings, and Gantz retained 98.6%, while the price of PathoGenesis common stock fell from $51 to $34 during the class period. As we held in Ronconi, [o]ne insider's well timed sales do not support the `strong inference' required by the [PSLRA] where the rest of the equally knowledgeable insiders act in a way inconsistent with the inference that the favorable characterizations of the company's affairs were known to be false when made. 253 F.3d at 436. See also In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1424-25 (9th Cir.1994) (finding no scienter because defendants held onto most of their [company's] stock and incurred the same large losses as plaintiffs). Gantz had never before sold PathoGenesis stock and thus we cannot compare the two challenged stock transactions to prior trading history. But we do not hesitate to conclude, under the circumstances alleged, that the sale of such a small percentage of Gantz's holdings during a period when no other insider was selling stock does not here give rise to a strong inference of deliberate or conscious recklessness. 27