No scienter about labor problems

In Local 731 Pension Trust Fund v. Diodes, Inc., the Fifth Circuit affirmed the dismissal of securities claims related to the alleged nondisclosure of labor problems at a Shanghai manufacturing plant, finding a failure to adequately allege scienter.  Most basically, the Court observed — “It is important to note the curious nature of the Fund’s claims. To recap the relevant facts: during the class period, Diodes repeatedly warned investors of a labor shortage that would affect its output in the first two quarters of 2011; Diodes accurately warned the precise impact this labor shortage would have on its financial results, not once, but twice. Yet the Fund contends that more disclosure was required.” The Court went on to reject arguments about the unique knowledge of the relevant executives, the company’s decision to make an early product shipment (noting this would have made the labor problem worse and more apparent), and circumstances of an insider’s stock sales.  No. 14-41141 (Jan. 13, 2016).