An institutional investor is suing Cisco Systems for damages
claiming that violations of US securities laws inflated its share
price. According to the lawsuit, $400 billion was then wiped from
its market capitalisation.
An institutional investor is suing Cisco Systems for damages
claiming that violations of US securities laws inflated its share
price. According to the lawsuit, $400 billion was then wiped from
its market capitalisation when the true state of the business
became apparent.
The investor, Plumbers and Pipefitters Local 572 Pension Fund, is
being represented by the law firm Milberg Weiss, a San Diego-based
class action specialist. The case is being brought in the United
States District Court for the Northern District of California and
Milberg Weiss is inviting all purchasers of Cisco shares during the
period between August 10, 1999 and February 6, 2001 to join a class
action.
The complaint charges Cisco and certain of its officers and
directors with violations of the Securities Exchange Act of 1934.
The complaint alleges that by August 1999, ISPs and competitive
local telephone companies had technology to deploy but little
capital, and Cisco used this as an opportunity to increase its
sales by providing capital financing to such companies but making
such financing conditional upon the purchase of large amounts of
Cisco product.
According to the lawsuit, through this alleged manipulation and
the shipment of defective or incomplete products, as well as
Cisco's failure to adequately accrue for excess and overvalued
inventory and uncollectable finance receivables, Cisco was able to
report “record” earnings each quarter until February this year.
Therefore, the lawsuit argues, Cisco and its officers thus made
positive but false statements about the company’s products,
financial results and business during the period. As a result,
Cisco's stock traded as high as $82.
The inflation in Cisco's stock price was essential to its main
corporate strategy, that of growth through acquisition, which Cisco
accomplished through the exchange of inflated Cisco shares. In
addition, the company and its officers had the motive and the
opportunity to perpetrate the fraudulent scheme and course of
business described herein in order to sell $595 million worth of
their own Cisco shares at prices as high as $80.24 per share, or
84% higher than the price to which Cisco shares dropped by February
2001, as the true state of Cisco's business and prospects began to
reach the market.
After completing more than 20 major acquisitions between
September 1999 and February 2001, by issuing more than 400 million
shares of Cisco stock, and selling more than 10 million shares of
their personal Cisco holdings, on 6th February 2001, Cisco
announced extremely disappointing second quarter results, including
earnings per share of only $0.18. This disclosure shocked the
market, causing Cisco's stock to decline to less than $30 per share
before closing just over $31 per share on 7th February, on record
volume of more than 279 million shares, inflicting billions of
dollars of damage investors. Cisco later admitted that third
quarter 2001 sales would be less than $4.8 billion, or lower than
any quarter since the second quarter 2000.
The misconduct by the company and its officers has wiped out
over $400 billion in market capitalisation as Cisco stock has
fallen 84% from its high during the class action period of $82 per
share as the truth about Cisco, its operations and prospects began
to reach the market. Cisco stock has dropped below $14.
