aside that Paisola was no longer employed by the Company eight days into the
Purported Class Period, plaintiff does not allege that Paisola had access during most of
the Purported Class Period to information relevant to plaintiff’s “fraud” theories.
The allegations relative to the Paisola E-mail appear at ¶ 117-124 and describe
his view that the Company’s decision to immediately recognize revenue is “not proper”
and that the Company was playing a “deferred revenue game.” CAC at ¶ 124.
However, the CAC does not allege any facts to back up Paisola’s view. At best, the
Paisola Email describes an error that resulted in the premature recognition of revenue.
This does not show scienter. The most generous reading of the Paisola E-mail
describes an error that resulted in the premature recognition of revenue by only $6
million per year, or 3.7% of 2005 revenues, which it is undisputed had no effect on the
Company’s cash flow statement.
Plaintiff also points to the fact that the Company issued a press release on May
15, 2006, followed by the filing of a Form 8-K with the SEC on May 19, 2006, which
announced the restatement of financial results to reflect a change in the Company’s
revenue recognition policy. CAC at ¶¶ 89-92. This is not sufficient to show scienter.
The restatement announcement had no negative impact on the Company’s stock prices
in fact, the stock price increased following this announcement –– and the amount of
revenue prematurely recognized was under 10% each year. See Defendants’ App. Tab
5 at p. 4 (2005: 9.5%, 2004: 2.6%, 2003: 5.7%). Moreover, the fact that a restatement
of audited financials occurred is not sufficient, in and of itself, to raise a strong inference
of scienter. Courts have held that a subsequent revelation of the errors of previous
statements does not imply scienter, because mere allegations that statements in one