On October 24, 2003, Judge Bucklo of the U.S. District Court for the Northern District of Illinois, Eastern Division, denied defendant Sears, Roebuck and several individual defendants Motion to Dismiss. Accordingly, the case has now been added to SLW's "Settlement Watch" category.

Plaintiffs allege that defendants misled shareholders about the risk level of balances in accounts in Sears' credit card portfolio, the delinquencies in those accounts, and the amount of "charge-offs" of unpaid accounts. The Court rejected the following argument made by defendants:

1. Puffery: The Court found that while some statements, considered by themselves, may fall in the "puffery" category, they may be actionable when taken in context if they reinforce factual misstatements and contribute to ongoing deception. In addition, the Court found that a number of defendants' alleged statements regarding delinquencies and charge-offs and low risk customers were not, even considered by themselves, mere puffery.

2. Scienter: The Court rejected defendant argument that plaintiffs failed to adequately allege scienter, and accepted plaintiffs' argument that "the particular executive positions held by the individual defendants establish a strong inference of conscious misbehavior or recklessness." The Court observed that the individual defendants were all executive officers of Sears during the class period, including the CEO/Chairman and CFO. The Court held that "[o]fficers of a company can be assumed to know of facts 'critical to a business's core operations or to an important transaction that would affect a company's performance,'" and that Sears' credit card portfolio was a core operation.

Thus, the Court held, "[l]ogically, defendants in their positions would be expected to have knowledge of the facts regarding the credit card portfolio at the time they were making statements about the portfolio or signing off on SEC filings. Plaintiffs have sufficiently alleged facts leading to a "strong inference" of scienter."