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On Sept. 1, the 9th U.S. Circuit Court of Appeals reinstated the stock drop complaint against Oracle Corp., concluding that the allegedly false statements made by Oracle CEO Lawrence Ellison, his well-timed sale of $900 million worth of company stock and Oracle’s improper accounting provided a basis for the securities complaint. “Considered separately, plaintiffs’ allegations may not create a strong inference” that Oracle officials intentionally misled the public, wrote Senior Judge Warren Ferguson. “However, we must consider ‘whether the total of plaintiffs’ allegations . . . are sufficient to create a strong inference that defendants acted with deliberate or conscious recklessness.’ ” Nursing Home Pension Fund, Local 144 v. Oracle Corp., No. 03-15883. Oracle’s attorney, Donald Falk, a partner at Chicago-based Mayer, Brown, Rowe & Maw’s Palo Alto, Calif., office, referred questions about the case to Oracle. “We believe that the allegations in that complaint are wholly unsupported by any evidence, and we are confident that Oracle will prevail when the litigation is concluded,” said company spokeswoman Deborah Lilienthal. The plaintiffs alleged a market loss of about $1 billion following Oracle’s announcement that its revenues for the third quarter of 2001 would fall short of its forecasts. The next day, 224 million shares of Oracle were traded. “It wiped out $90 billion in Oracle market cap,” said plaintiffs’ attorney Sanford Svetcov, a partner in the San Francisco office of San Diego-based Lerach Coughlin Stoia Geller Rudman & Robbins. The 9th Circuit noted in its ruling that a former vice president of finance had said that the defendants would have known six weeks before the end of the third quarter that their sales projections for applications would be off by at least 50%. The court also said that the timing of stock sales by Ellison and Chief Financial Officer Jeffrey Henley was “suspicious.” Ellison had sold 29 million shares of Oracle stock for almost $900 million during the last week of January 2001. Three weeks earlier, Henley had sold 1 million shares for $32 per share. Finally, the court cited Oracle’s improper revenue accounting as evidence that the company may have intentionally misled the public about its profits. The 9th Circuit concluded that the hands-on management style of the officials named as defendants in the suit made it “reasonable to infer” that they would have known that the company would miss its quarterly earnings projections but for the allegedly improper revenue accounting.

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