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In re Oracle Corp. Derivative Litigation11/24/2004
by the defendant. This interesting back-and-forth is important under the federal securities laws, especially because of recent reforms that require that even a complaint state with particularity facts giving rise to a strong inference that the defendant acted with scienter.
Here, these complexities are not as important for an obvious reason. There is no rational basis to conclude that Henley or Ellison possessed material, adverse information at any relevant time. If there is something like "less than zero" outside of Elvis Costello's music, then there is even less reason to infer that Henley or Ellison "knowingly" possessed material, adverse information. The record is wholly devoid of any basis to suspect that either of them believed that Oracle would materially fall short of the Market Estimates as of the time of their trades. To the contrary, there is every reason to conclude that each thought Oracle would, at the times relevant to their respective trading decisions, hit the target.
The plaintiffs, of course, make much of what they see as inconsistencies or inaccuracies in Ellison's testimony. Although Ellison's deposition and interview testimony reveals at times a lack of precision, the only rational inference that can be drawn from his testimony is that he was at times over-bullish. Importantly, despite a vast record, there is no evidence that could suggest to a rational mind that Ellison was a false optimist whose sunny outlook masked a genuinely darker view of Oracle's future. When considered in isolation or along with the other testimonial and documentary evidence, Ellison's testimony does not rationally suggest scienter. His overall story coheres and his failure to remember certain details with precision at all times is understandable.
Nor do the objective facts about Henley and Ellison's trades create any rational inference of scienter. As to Henley, his trades were timed to occur early in a quarter, at a time when Oracle's Best Estimate was that it would beat the Market Estimates. His trades were in keeping with a pattern of diversification and his decision to trade in a new calendar (and therefore tax) year was motivated by proper, non- suspicious financial considerations. Finally, Henley sold only 7% of his Oracle position, leaving him a huge stake in the company.
As to Ellison, the picture is only clouded by his huge wealth. Because Ellison's ownership interest in Oracle was so substantial, his sales generated nearly a billion dollars in proceeds even though they involved only 2% of his Oracle shares. Although it is difficult to slight nearly a billion dollars, that figure must be considered in the context of Ellison's remaining net worth, which was many, many times more enormous, and in light of the reality that Oracle was not Webvan or Enron - Oracle made and still makes real products that sell for real profits. There is therefore no rational basis to believe that, by making large sales when he did, Ellison was fleeing disaster or seeking to make an unfair buck at the expense of the trading public. Rather, the record is clear that Ellison had only three windows left (including 3Q 01) to exercise a large number of options. The record is also clear that Ellison's financial advisor had been urging him to sell some shares to pay down debt for some time and that Ellison had tarried.
The plaintiffs try to turn that delay into a rational basis for suspicion about Ellison's motives. But their argument comes across as the ravings of conspiracy theorists, who weave tales out of nothing. In their brief, the plaintiffs actually suggest that the limited number of windows left for Ellison to exercise his options was not a rational motivating factor becaus
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