The Roots Partnership v. Lands’ End, Inc.

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

Facts:

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.

Issue:

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

Holding/Analysis:

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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