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InSecurities: Securities Fraud Roundup 4.28.11

April 28th, 2011. By LucyC

Top Securities Fraud Stories

The securities fraud story that’s got the attention of most folks right now is the Erica P. John Fund v. Halliburton case—which the Supreme Court has been hearing oral arguments on this week. Not because any of us held any Halliburton stock—and not even because it’s related to Halliburton’s liability to asbestos-related lawsuits, though asbestos is a hot topic here at LawyersandSettlements.com. No, this one’s a biggie because it has to do with whether a plaintiff can only obtain class action certification by establishing a preponderance of the evidence that shows that a corporation’s correction of its false statements made its stock price tank thereby screwing its investors.

The Halliburton case is actually from way back in 2002. The plaintiff, Erica P. John Fund, claimed that at the time, Halliburton understated its liability exposure to asbestos-related lawsuits and overstated its revenues—then, came out later correcting those statements at which point Halliburton’s stock price declined. The question at the heart of the matter pertains to loss causation—i.e., the plaintiffs’ ability to link their losses to a particular statement made by the company. After the Halliburton case had initially been thrown out by a Texas federal court—meaning that the court found the plaintiffs did not show causation of loss—an appeals court upheld the decision. And here we are awaiting the Supreme Court’s decision which is sure to have a major impact either way on how securities cases are handled in the future.

So, be that as it may, the theme for this month’s InSecurities column is entitled “In violation of federal securities laws” and you’ll find the specific allegations—chapter and verse—below. So let’s get started with our first securities suit: Rosetta Stone…

Company:                    Rosetta Stone, Inc

Ticker:                         RST

Class Period:                Feb-25-10 to Mar-1-11

Date Filed:                   Mar-31-11

Lead Plaintiff Deadline:  May-30-11

Court:                          Eastern District of Virginia

Madoff Meter:

The Allegations:

Nothing like learning first hand, as Rosetta Stone is finding out. They got hit with a securities lawsuit at the end of March, alleging—everyone sing along—you know the words—”certain of its officers and directors violated federal securities laws.” Very nice. Nothing like a good harmony.

The class period is practically 12 months—from February 25, 2010 to March 1, 2011, inclusive (the “Class Period”). The specific allegations—from the top—are (i) that Rosetta Stone was facing intense competition for its products, including free competitive product offerings; (ii) that the free and lower priced competitive product offerings, not a temporary reduction in advertising, was having a material adverse effect on the Company’s Class Period revenues, particularly U.S. consumer revenues; (iii) that the favorable sales booking numbers Rosetta Stone reported during the Class Period was the result of key retail partners maintaining inventory of the Company’s products well above historic levels; and (iv) that Rosetta Stone’s reported sales bookings and revenues during the Class Period were the product of manipulation.

But of course, the truth comes home to roost eventually, and on February 28, Rosetta Stone announced fourth quarter revenue of $74.3 million, a 5% decrease from the prior year, net income on a GAAP basis of $5.0 million, a decrease of 60% from the 2009 fourth quarter. On this news, shares of Rosetta Stone fell $1.77 to $13.19 per share. Ker plunk. I think this gets a 3 Bernie rating on our trusty Madoff meter.

Next up: 1st Centennial Bancorp…

Company:                        1st Centennial Bancorp

Ticker:                             FECN

Class Period:                    Apr-13-06 to Jan-23-09

Date Filed:                       Apr-19-11

Lead Plaintiff Deadline:     Jun-18-11

Court: —

Madoff Meter:

The Allegations:

Weary investors in 1st Centennial Bancorp filed a securities class action on April 19, in hopes that they may get some of their hard earned dollars back from a less than stellar investment. As the class period runs from April 13, 2006 to January 23, 2009, there could be quite a line-up for payouts.

Here’s the nitty-gritty—during the Class Period, 1st Centennial was a bank holding company for the 1st Centennial Bank (the “Bank”). During that period, the bank misled investors and Read the rest of this entry »

Tags: 1st Centennial Bancorp, American Superconductor, Ameriprise Financial, Halliburton, Insecurities, loss causation, Madoff Meter, Puda Coal, Rosetta Stone, securities, Securities America, Supreme Court
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