Stockholders v Utstarcom Inc.
Utstarcom Stockholders Sue Company for $380M in Lost Revenue
A class action has been filed in the Northern District Court of California against Utstarcom Inc. (NASDAQ: UTSI), a California based communications services company, and certain of its officers and directors by stockholders who purchased the company's common stock between April 16, 2003 and September 20, 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 alleges that during the class period, the defendants caused UTStarcom's shares to trade at artificially inflated levels through the issuance of false and misleading financial statements. As a result of the inflation, UTStarcom was able to raise proceeds of $475 million through a secondary offering and Company insiders allegedly reaped $56 million in illegal insider trading proceeds.
More specifically, the complaint alleges that the Company concealed the following facts from the public:
• The Company had massive supply chain constraints delaying legitimate revenue recognition
• The Company's prime margins were eroding in China
• The Company lacked internal control over its ability to analyze revenue recognition criteria
• The Company was in violation of NASDAQ rules requiring that the Board of Directors have a majority which is independent
• The Company's Japanese related revenue projections with Japan Telecom were overstated by $290 million
On September 16 2004, the Company reported that income projections would not be as high as expected and that there were significant problems with the Company's internal controls. This news caused the Company's stock to drop 5.86%. Days later, they announced that they were revising their financial guidance downward. The revision was based on a deal with Japan Telecom that could not yet be recognized. This news caused their stock to drop an additional 9.86%.
