Angered by insider sales prior to this summer's downward earnings revisions and share crash, several Tempur-Pedic International Inc. (NYSE:TPX) investors have filed securities fraud suits against the popular memory foam mattress maker.
It is a case they will not likely be winning. Publicly available pleadings in the matter indicate no knowledge of any actual fact amounting to fraud and appear to merely present conjecture, citing insider sales followed by an unusual announcement and stock plunge. In a nutshell, the cases allege Tempur-Pedic's management must or should have known sales were flagging and nevertheless kept quiet about it while cashing out of their own shares. Only there are no facts to prove it.
On the surface, no statistical evidence suggests unusual insider selling. Indeed volumes appear lower than during several prior years. Accordingly, the plaintiffs may have a difficult time presenting a prima-facie case.
Moreover, the pleadings fail to head off any of the obvious defenses Tempur-Pedic will likely assert, such as normal tax season selling, the prevalence of momentum speculators in the stock, the lack of dividends to provide a floor to the share price, or the unusually good market reception to competitor's products, a phenomenon itself new to Tempur-Pedic.
Lawyers for shareholders apparently are banking on a quick settlement with Tempur-Pedic's insurers and a fast payday. It appears, however, that at this stage they have neither the scienter nor the demonstrable facts to support a serious fraud case. Unless a smoking gun is found during discovery, these class actions appear likely to fail.