The July 1, 2009 dismissal of the In re Gildan Activewear, Inc. Securities Litigation class action shows that Rule 10b5-1 trading plans can help defendants negate the inference that their sales of stock are suspicious. This is important because suspicious stock sales can be used to show a strong inference of scienter on the part of a defendant, allowing plaintiffs to survive a motion to dismiss.
In Gildan, the court noted that “the sole facts on which Plaintiffs rely to allege motive are that Defendants Chamandy and Sellyn sold a substantial number of their shares in Gildan during or shortly before the Class Period.” The court found, however, that such allegations failed to raise the requisite strong inference of scienter for at least three reasons:
