The Roots Partnership v. Lands’ End, Inc.

965 F.2d 1411, 7th Cir., 1992


P argues that D made false and misleading statements to artificially inflate its stock price.

Ps allege that between March 7 and December 11 of 1989 D made the false statements.  The relevant timelines is as follows:

March 7 – D announced its earnings of $1.61 per share.

April 4 – D predicts its future earnings for next year.  In so doing, D states that a reduction in net earnings is an aberration and that in the past second half earnings were much higher.  They also stated that their projection for pre-tax income as a percentage of sales was 10%.

April 30th– D’s internal projection for the fiscal year is really 9.9%.

May 20 – D’s president says they cannot project Christmas sales.

June 15 – D’s internal projection is now 9.6%

June 19 – Letter to shareholders states they cannot predict Christmas sales and the goal is 10%

June 27 – Internal projection now down to 9.38%

July 25 – P purchases D’s stock.

December 11 – Internal projection as low as 8.3%

With the stock substantially lower, P argues the false and misleading statements were in regards to the company’s goal and historical profits.  P relies on fraud on the market to demonstrate reliance.


Whether any of the above statements by the company were false and misleading so as to trigger fraud on the market reliance.


No, the “bespeaks doctrine” saves D because a reasonable investor would have believed the statements were goal-oriented and not official internal projections.  These were forward looking statements.

Via Fraud on the Market Theory, P cannot claim reliance.    The company’s actual performance in prior years is reflected in its price, not the small error stated by D.

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