Darden Restaurants Accused of Inflating Stock

Orlando, FLDarden Restaurants, which operates the Red Lobster, LongHorn, and Olive Garden restaurants, is now the subject of a lawsuit filed March 19, 2008 in U.S. District Court for the Middle District of Florida on behalf of its stockholders.

The complaint alleges that Darden, based out of Orlando, misrepresented its business, market prospects, and financial performance in a way that violated security laws. It is believed that such practices artificially inflated the company's stock.

Artificially inflating stock violates the Securities Exchange Act of 1934 and the shareholder class action lawsuit alleges that certain officers and directors are in violation of the law by not disclosing the financial condition of the company during the time period in which they are suing for.

The suit alleges that the restaurants were underperforming in their same-store sales and their trends were negative, that the company's food costs were rising above what they had projected, and that both the decline in same-store sales and food costs gave the company no basis to release positive statements regarding the performance of their restaurants.

Darden had announced their financial results on December 18, 2007 for the period that had ended on November 25, 2007. They had announced their sales at $1.52 billion and their net earnings at $44.1 million, which translates into $0.30 per diluted share. The company suddenly reduced their diluted net earnings per share during fiscal 2008 to 7-9%, which is down from 10-12%. This caused the stock to drop to $28.39 per share, which was a $7.68 per share loss for shareholders.

The class for the class-action lawsuit has not yet been certified. Until the class is certified, those taking part in the lawsuit cannot be represented by an attorney until certification has been achieved.

The complaint was filed by Howard G. Smith, an attorney out of Bensalem, Pa. and was filed on behalf of those who had purchased the company's stock between June 19, 2007 and December 18, 2007.

As for any comments from Darden, there has not been any offered to the public because they have yet to see the lawsuit.

By Ginger Gillenwater