A class action has been filed against Swift Transportation Co., Inc., a Phoenix Arizona based truckload carrier, (NASDAQ: SWFT) and certain of its officers and directors by stockholders who purchased the company's common stock between October 16, 2003 and October 1, 2004. 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.
Specifically, the complaint charges Swift, Gary R. Enzor, Patrick J. Farley, Jerry C. Moyes, and William F. Riley III, with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. More specifically, the complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them:
(1) that the conditional safety rating given to the Company by the FMSCA was not an error, but rather a true representation of Swift's performance
(2) that making the internal changes necessary to improve the rating was fiscally prohibitive
(3) that the Company had to absorb the cost of the new Department of Transportation regulations requiring that drivers be paid for loading time and time waiting to load
(4) that as a consequence of the foregoing, the Company was losing its competitive position and revenue, however, in order to maintain the appearance of financial well being, for the benefit of defendant Moyes personal finances, the Company systematically under-depreciating its capital assets thereby artificially inflating its revenues
(5) that as a result of this, the Company's financial results were in violation of Generally Accepted Accounting Principles ("GAAP")
(6) the Company lacked adequate internal controls
(7) the Company's financial results were materially inflated at all relevant times.
On September 15, 2004, Swift announced that it had adopted a new repurchase program, under which it may acquire up to $150 million of its common stock over the next several months. Additionally, Swift also announced that it expects Q3 earnings to range between 26 cents and 31 cents per share.
On this announcement, shares of Swift stock fell $2.18 per share, or 14.9 percent. On October 1, 2004, Swift announced that the previously disclosed informal inquiry by the SEC into certain stock trades by the company and insiders, including defendant Moyes, had become part of a formal investigation. The investigation centers around certain stock trades made by defendant Moyes as well as selected the Company repurchases. On this news, shares of Swift fell an additional $.95 per share, or 5.4 percent.