Opinion ID: 2807988
Heading Depth: 4
Heading Rank: 2

Heading: Jastrow

Text: Jastrow was the CEO and Chairman of the Board of Directors of Temple until the spin-off, and was Chairman of the Board of Directors of Guaranty until his resignation on August 26, 2008. Plaintiffs seek to hold Jastrow liable for wrongful conduct from the beginning of the Class Period through his resignation. Plaintiffs identify two alleged misstatements made by Jastrow. First, Jastrow signed a cover letter to a Form 8-K filed with the SEC in December 2007, just prior to the spin-off. The Form 8-K contained a statement 18 Dubuque, alone among defendants, presents a potential mitigating factor against inferring scienter. In August 2008, he purchased over $700,000 worth of Guaranty shares. According to Dubuque, the purchase of Guaranty stock during the Class Period “suggest[s] the absence of any nefarious motives.” Plumbers & Steamfitters Local 773 Pension Fund v. Canadian Imperial Bank of Commerce, 694 F. Supp. 2d 287, 299 (S.D.N.Y. 2010). We place little value on Dubuque’s stock purchases. While the record reflects Dubuque’s purchases of stock, it is devoid of facts showing whether Dubuque kept his holdings through the price drop—which would be some evidence of lack of scienter—or sold them at an inflated price before any corrective disclosure—which would not be inconsistent with fraudulent intent. 23 Case: 13-10928 Document: 00513076785 Page: 24 Date Filed: 06/12/2015 No. 13-10928 that financial disclosures were based on GAAP. Second, Jastrow signed a Form 10-K issued by Guaranty on February 29, 2008. Plaintiffs contend that the 10-K’s statement that its financial statements conformed with GAAP was materially false. The SAC did not allege that Jastrow was ever informed of internal disagreements or warnings regarding Guaranty’s MBS valuation. Plaintiffs do not allege that he received any communications from any of the confidential witnesses. The “red flags” highlighted in the SAC are not alleged to have alerted anyone to problems in the MBS portfolio until June 2008, several months after Jastrow’s last alleged misstatement. As discussed, supra, the SAC’s invocation of the Tepper complaint alleges that Jastrow had knowledge of Guaranty’s undercapitalization during the Class Period. This constitutes a possible motive and creates a slight inference of scienter, but does not rise to the required “strong inference.” The only additional allegation as to Jastrow does not provide the missing piece. The SAC alleges that, at a Temple board meeting, Jastrow stated that the California real estate markets were deteriorating because adjustable rate mortgages were being reset. 19 Plaintiffs contend that this observation contributes to an inference of scienter because the mortgages underlying Guaranty’s MBS portfolio comprised a high concentration of California adjustable rate loans. Together, Jastrow’s knowledge of Guaranty’s undercapitalization and awareness of the decline of the California real estate market do not rise to the level of a “strong inference” of scienter that is at least as likely as the alternative inference that Jastrow was merely negligent in 19 Plaintiffs do not plead with particularity when Jastrow made this comment, only alleging that it occurred “before the Spin-Off.” 24 Case: 13-10928 Document: 00513076785 Page: 25 Date Filed: 06/12/2015 No. 13-10928 believing that any decline was temporary and would not affect Guaranty’s AAA-rated securities.