Given that the company had asserted that the former executive was terminated for performance reasons, including a failure to cut costs sufficiently, the Court concluded that the more persuasive inference was that the former executive, rather than his entire division, was “performing poorly.” Id. The Court first determined that the allegations derived from the former executive’s lawsuit, including that the former executive had complained about the cost-cutting measures, supported only a weak inference of scienter that defendants knew they could not meet their revenue projections.

The Court concluded that none of these allegations, either on their own or viewed holistically, plausibly established that defendants acted with scienter. Plaintiffs relied on five types of allegations to demonstrate scienter: (1) allegations made by a former executive in a separate lawsuit (2) statements of unnamed former employees (3) stock sales by certain executives during the class period (4) the core-operations theory and (5) the temporal proximity between the company’s challenged revenue projections and its ultimate admission that those forecasts had been overly optimistic. The district court dismissed the action and the Fourth Circuit affirmed, holding that plaintiffs failed to adequately allege scienter. Plaintiffs claimed that the company made misrepresentations regarding its financial health, which plaintiffs alleged were false because the company had undertaken cost-cutting measures that undermined its ability to meet its revenue projections. On December 1, 2021, the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of a putative class action asserting claims under the Securities Exchange Act of 1934 against an information technology company and certain of its executives.

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