Failed Expansion Does Not Constitute Wrongdoing
Shareholders brought multiple suits against retail corporation Target and its current and former agents. The defendants allegedly made false and misleading statements related to the company’s performance and supply chain regarding its expansion into the international market, specifically Target Canada, in violation of the Securities Exchange Act as well as breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA). Appealing dismissal of the case, the shareholders maintained the company executives misled investors by understating the seriousness of the problems with Target Canada and overstating their ability to fix them. The Eighth Circuit balked holding that the shareholders failed to meet the pleading standards of the Private Securities Litigation Reform Act (PSLRA).Though the international venture was a failure, this does not mean that scienter was pled adequately; moreover, the PSLRA does not allow pleading fraud by hindsight. The more compelling inference, which is fatal to the investors’ case, is that the Target executives did not understand the magnitude of the problems they faced. The Court also rejected allegations of insider selling.