October 17, 2008

An Ounce of Prevention

Centene Corporation requires all insider stock transactions by its senior executives to be executed under pre-authorized Rule 10b5-1 stock trading plans. That policy turns out to have been helpful in obtaining the dismissal of a securities class action against the company.

In Elam v. Neidorff, 2008 WL 4587310 (8th Cir. Oct. 16, 2008), the Eighth Circuit reviewed the dismissal of the securities class action against Centene and certain individual officers. The plaintiffs argued that scienter (i.e., fraudulent intent) was demonstrated, among other things, by insider stock sales during the class period. The court, however, found that the stock sales could not support an inference of scienter because they were (a) done pursuant to Rule 10b5-1 trading plans, and (b) represented only a small portion of each seller's overall holdings. Interestingly, the court discussed the terms of the trading plans, suggesting that the trading plans were publicly disclosed. (For more on this issue and related posts, click here.)

Holding: Dismissal affirmed (for failure to adequately plead falsity and scienter).

Posted by Lyle Roberts at October 17, 2008 9:09 PM | TrackBack
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