The action alleged that the defendants knew but concealed from the investing public that: (1) the company’s Wood Village facilities were not suitable or ready for defendants’ claimed plans as stated in their press releases; (2) Merix’ gross margins were being eroded by defective products, a shift in the company’s business model and costs associated with its opening of a long-planned new facility; (3) the company was experiencing a material decline in its “premium service business,” a line of business which had once provided 50% of its revenue; (4) the company’s top networking customer, Cisco, had dramatically reduced its orders to the Merix due to excessive inventory in its channel; (5) the company had experienced a massive manufacturing disruption, which included a lamination failure in its boards, which pushed orders out into future quarters and would prevent these orders from being recognized as revenue until the indefinite future; (6) Merix was losing market share, as Cisco was increasing business with other suppliers which had capacity on hand, to avoid paying premium prices to Merix; and (7) as a result, the company’s fourth quarter projections (ending May 2004) of $0.14 earnings per share were grossly inflated.

As a result of the defendants’ false statements, Merix stock price traded at inflated levels during the applicable period, increasing to as high as $28 in January 2004, at which point top company officers and directors sold more than $3.5 million worth of their own shares, and Merix completed a $90 million secondary offering. On May 13, 2004, the defendants announced that Merix would fall materially short of hitting its forecasted projections. On this news, company shares plunged from $15.32 to $10.68 per share, a market cap loss of more than $90 million.