Reference no: EM131675731

Question: The plaintiff commented that the defendants "intentionally or recklessly failed to disclose a change in Japanese regulations that predictably reduced demand for the corporation's products and services in Japan, a significant market for the company." The plaintiff further alleged that this information was material and that its nondisclosure by the defendants was misleading and grounds for illegal conduct under Sections 10(b) and 20(a) of the Securities Exchange Act as insider trading. The district court dismissed the allegations for "failing to meet the strong inference of scienter set forth in the Private Securities Litigation Reform Act." The plaintiff appealed, and the appellate court affirmed the district court's dismissal of the insider-trading allegations. The appellate court concluded that "it would have been easy [for the defendants] to disclose the change in regulations. It was not unreasonable to be suspicious of why that was not done. But mere suspicion was not enough." Do you agree or disagree with the appellate court's ruling regarding the allegations of insider trading? Why?