InSecurities: Securities Fraud Roundup 6.7.11

June 7th, 2011. By LucyC

Top Securities Fraud Stories

So here we go…another roundup of all the securities fraud lawsuits that’ve recently cropped up and have hit our Madoff meter. So without further ado, let’s get straight to them…

New Securities Lawsuits Filed 

What was that Eurythmics Song?—Here Comes That Sinking Feeling Again…ok, so maybe Annie was singing about rain and whatever it represents and not about quicksand. But you can bet your bottom dollar that the folks who invested in WMS Industries during the class period here were probably feeling a bit under the weather with this one: WMS Industries Inc. Securities Fraud…

Company:	WMS Industries Inc
Ticker:	WMS
Class Period:	Nov-1-10 to Apr-11-11
Date Filed:	May-25-11
Lead Plaintiff Deadline:	Jul-24-11
Court:	Northern District of Illinois
Madoff Meter:

The Allegations:

WMS Industries, which designs, manufactures and distributes both video and mechanical slot machines and video lottery terminals, got hit with a securities class action in the latter half of May alleging materially false and misleading statements. Yes, that old chestnut.

The allegations state that WMS has not been successful in living up to claims that it would continue to post sales revenue and margin gains “without the benefit or need for the recovery of overall demand or the casino gaming replacement cycle.”

For those of us not following the ups and downs of the electronic gaming industry—it’s in a down cycle right now, apparently. And I daresay, no amount of lawyer conferences and conventions traipsing into Vegas is gonna turn that around. Regardless, what the heck industry isn’t in a down cycle now?

On April 11, 2011, the Company pre-announced its third quarter 2011 financial results, stating that it had again missed Wall Street earnings projections by $0.11 per share, reporting $0.40-$0.42 as opposed to consensus estimates of $0.51. The Company also reported that its revenue forecast for the third quarter of 2011 would be cut by up to $24 million and revenues for fiscal 2011 would be cut by up to $60 million. In addition, the Company reported that it did not expect demand to recover for the remainder of fiscal 2011 or 2012 and thus cut its forecasted fiscal 2012 revenue estimates by up to $120 million. As a result of these disclosures, WMS’s stock price declined more than 17% to close at $30.01 on 9.8 million shares traded, down from a close of $36.22 on April 11, 2011.

If you bought stocks in WMS—betting you would see a profit—you may be an eligible class member. The suit was filed in the United States District Court for the Northern District of Illinois on behalf of purchasers of WMS Industries Inc. (“WMS”) (NYSE:WMS) common stock during the period between November 1, 2010 and April 11, 2011 (the “Class Period”).

3 Bernies on the Madoff Meter for this one. Next up, Logitech International…

Company:	Logitech International SA
Ticker:	LOGI
Class Period:	Oct-28-10 to Apr-1-11
Date Filed:	May-24-11
Lead Plaintiff Deadline:	Jul-23-11
Court:	Southern District of New York
Madoff Meter:

The Allegations:

The Complaint against Logitech is industry standard—claiming that the company and certain of its officers and directors failed to disclose the following: (i) that Logitech’s distributors were overstocked with inventory of certain product lines; (ii) that the Company’s pricing and promotional activity was not operating according to plan; (iii) that demand for Logitech’s products in the Europe, Middle East and Africa markets was significantly declining far below internal expectations; and (iv) as a result of the foregoing, defendants’ positive statements about Logitech were materially false and misleading when made.

On March 31, 2011, Logitech announced that it had lowered its full-year outlook for Fiscal Year 2011 and now expects sales in the range of $2.35-$2.37 billion, down from the previous range of $2.4-$2.42 billion, and operating income in the range of $140-$150 million, down from the previous range of $170-$180 million.

On this news, Logitech stock fell from $18.13 to $14.71 per share on April 1, 2011. The class seeks to represent folks who purchased or held common stock of Logitech International SA (“Logitech” or the “Company”) (NASDAQ: LOGI) between October 28, 2010 and April 1, 2011, inclusive (the “Class Period”).

No surprises here. Another 3 on the Maddoff Meter for this one. Moving along to Oclaro, Inc….

Company:	Oclaro, Inc
Ticker:	OCLR
Class Period:	May-6-10 to Oct-27-10
Date Filed:	May-20-11
Lead Plaintiff Deadline:	Jul-19-11
Court:	Northern District of California
Madoff Meter:

The Allegations:

Purchasers of Oclaro, Inc. (“Oclaro”) (NASDAQ:OCLR) common stock filed a securities action this month, specifically for the period between May 6, 2010 and October 27, 2010 (the “Class Period”).

Oclaro is a leading provider of high-performance core optical network components, modules and subsystems to global telecom equipment manufacturers. It’s now getting its 15 minutes of fame because, as the allegations go, the company and certain of its officers etc, weren’t entirely transparent about the financial condition of the business. As a result, a desired result, based on the allegations, Oclaro stock traded at artificially inflated prices during the Class Period, reaching a high of $17.07 per share on October 17, 2010.

But, of course, this wasn’t sustainable. On October 28, 2010, before the market opened, Oclaro reported first quarter 2011 earnings per share of $0.01 as compared to analyst estimates of $0.22. That’s a wee bit of a difference.

The Company also posted sequential gross margin declines and reported that its anticipated second quarter 2011 revenues, earnings and gross margins, which it had previously indicated would post accelerated gains, would also be down, all as a result of sudden customer inventory corrections and weak demand visibility, among other things. On this news, Oclaro’s stock price fell 37% to close at $8.60 per share on October 28, 2010, from a close of $13.68 per share on October 27, 2010, on high volume.

Still no surprises. So it’s another 3 on the Madoff Meter. Now for trendy clothier Urban Outfitters…

Company:	Urban Outfitters Inc
Ticker:	URBN
Class Period:	Nov-15-10 to Mar-7-11
Date Filed:	May-25-11
Lead Plaintiff Deadline:	Jul-24-11
Court:	Eastern District of Pennsylvania
Madoff Meter:

The Allegations:

Urban Outfitters got caught out of step by its shareholders, who have filed a securities class action. Apparently, the company discussed an emerging shift in fashion trends which they represented as an opportunity for the Company and represented to investors that the Company would be able to manage the trend, that Company had effective inventory management controls and systems, and that Urban Outfitters inventory would “grow more in-line with sales growth.” What does that mean?

It is alleged, however, that by the beginning of the Class Period, the defendants knew, or had reason to know, that the Company was not managing the shift in fashion trends. How did they know this? Well, (1) the Company’s inventories were increasing materially more than sales, (2) sales at the Company’s namesake Urban Outfitters store and Anthropologie division were materially declining due to lack of customer demand, especially for women’s apparel, and (3) as a result, the Company was forced to mark down the price of inventory which materially adversely affected the Company’s margins and financial results for the quarter ended January 31, 2011.

Actually, I’m seeing a trend here…

The Complaint further alleges that on March 7, 2011, investors in Urban Outfitters’ stock learned the truth about the Company when, after the close of trading, Defendants disclosed the Company’s financial results for the quarter ended January 31, 2011.

Among other things, the Company disclosed i) earnings of $75 million or $0.45 per share for the fourth quarter, which was approximately 13% less than the $0.52 per share expected by analysts; ii) that gross profit margin materially declined, primarily due to increased merchandise markdowns to clear seasonal inventory associated with changing women’s apparel fashion trends; and iii) retail inventories increased by 10% at cost while total comparable store inventory increased by 4% at cost and total inventories grew by $43 million or 23%, on a year-over-year basis.

On March 8, 2011, Urban Outfitters shares declined from a close on March 7, 2011 of $37.99 per share, to close at $31.66 per share, a decline of $6.33 per share or approximately 17% on heavier than usual volume.

Ok—no marks for originality guys. 3 Bernies on the old Madoff Meter. 

Securities Settlements

A couple of interesting securities settlements in the past month—the first involves Duke Energy, which reached a $30 million settlement in May, ending an ERISA class action with no less than 20,000 class members. The plaintiffs who had worked for Duke Energy Corp, alleged that company broke federal law when it changed its retirement plan.

According to the Greenville News, Duke workers said the Charlotte, N.C., company violated the Employment Retirement Income Security Act of 1974 in how it administered and calculated benefits under its retirement cash balance plan.

And last but not least—Tellabs Inc appear to have reached a settlement in their securities litigation. Anyone who purchased the common stock of Tellabs, Inc. during the period from December 11, 2000 through June 19, 2001, inclusive (the “Class”) was notified about the pending settlement, which is scheduled for a court hearing on July 26—for final approval—or not. The court will determine if the proposed settlement is fair, reasonable, and adequate, among other things.

Tags: Duke Energy, Insecurities, Logitech International, Madoff Meter, Oclaro Inc, Securities lawsuit, securities settlement, Tellabs, Urban Outfitters, WMS Industries

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