A class action has been filed against membership shopping warehouse operator PriceSmart, Inc. (Nasdaq: PSMT) and certain of its officers and directors by stockholders who purchased the company's common stock between December 20, 2001, and November 7, 2003. The action claims that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. The stockholders seek to recover compensatory damages for the loss of value of their stock.

The action alleges that the defendants' statements during this time period were materially false because they failed to disclose, or misrepresented, the following adverse facts: (1) that PriceSmart had materially overstated its net income and earnings per share; (2) that the company had materially overstated its net warehouse sales; (3) that the company's financial results were in violation of GAAP; (4) that the company lacked adequate internal controls and was therefore unable to ascertain its true financial condition; and (5) that as a result, the value of the company's net income and financial results were materially overstated at all relevant times.

On November 10, 2003, before the markets opened, PriceSmart shocked the market by announcing that it would be restating its financial results for fiscal year 2002 and the first three quarters of fiscal year 2003. The market reacted swiftly to this news, with the company's stock price falling more than 9% to close at $8.34 per share on that day.