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When its first stock drop complaint against Oracle Corp. was thrown out, Lerach Coughlin Stoia Geller Rudman & Robbins went hunting for evidence against the software giant. The second complaint was also tossed, but the plaintiffs may have struck pay dirt anyway. On Wednesday, the 9th U.S. Circuit Court of Appeals reinstated it, concluding that 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, even though individually lacking, are sufficient to create a strong inference that defendants acted with deliberate or conscious recklessness.’ “We find that the totality of the allegations does create a strong inference that Oracle acted with scienter,” that is, knowingly made false statements. Ferguson was joined by Judges Stephen Reinhardt and Richard Paez. Oracle’s attorney, Donald Falk, a partner at 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. U.S. District Judge Martin Jenkins, who granted Oracle’s motion to dismiss the complaint in March 2003, will take up the case again. In Nursing Home Pension Fund, Local 144 v. Oracle Corp., 03-15883, plaintiffs allege 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 day after the March 1, 2001, announcement, Oracle stock fell from $19.50 to $16.88 per share. A month before, the stock sold as high as $34. Oracle investors scrambled to dump the stock. On March 2, 2001, 224 million shares of Oracle were traded, the “third-largest one-day trading volume in U.S. history,” said Sanford Svetcov, a partner in Lerach Coughlin’s San Francisco office who handled the appeal to the 9th Circuit. “It wiped out $90 billion in Oracle market cap.” Svetcov said his firm paid unusual heed to the heightened pleading standards set out in In re Silicon Graphics Securities Litigation, 183 F.3d 970. “We pled more detailed facts,” Svetcov said. “The trial team did a fantastic investigation” coming up with 49 witnesses and various documents. For example, the complaint includes statements from former employees and managers testifying that there had been a major slowdown in sales, undercutting public statements from Oracle officials that the company had not been affected by the economic slowdown at that time. The 9th Circuit notes in its ruling that a former vice president of finance said 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 percent. The court also said the timing of stock sales by Ellison and Chief Financial Officer Jeffrey Henley is “suspicious.” Ellison 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. The plaintiffs allege that Ellison had not sold any Oracle stock for five years before that. Finally, the court cited Oracle’s improper revenue accounting as evidence the company may have intentionally misled the public about its profits. The plaintiffs allege Oracle credited money that customers inadvertently overpaid the company as revenue. The court cites testimony from a former Oracle senior manager that this system “resulted in $230 million being improperly recognized as revenue.” The 9th Circuit concludes that the hands-on management style of the three officials named as defendants in the suit — Ellison, Henley and Executive Vice President Edward Sanderson Jr. — makes it “reasonable to infer” that they would have known the company would miss its quarterly earnings projections but for the allegedly improper revenue accounting. As to how much plaintiffs would seek in damages, Svetcov said it was “too early to talk about that.” But if Lerach Coughlin recovers a fraction of the alleged $1 billion market loss for plaintiffs, the firm is sure to score millions of dollars in attorney fees.

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