I wouldn't be so brash in your assumption that the class action suit
alledging securities fraud is without merit. Both the chairman and chief
financial officer of Mercator have been replaced as a result of the
activities specified in the complaint. To quote some statements in the press
release about the allegations in the complaint:
"The complaint alleges that Mercator and certain officers and directors
issued false and misleading financial statements and press releases to the
investing public concerning the Company's publicly reported earnings and
expenses. Moreover, the Company omitted to state material information
necessary to be issued in order to make prior statements not misleading."
"Specifically, on August 21, 2000, after the market had closed, Mercator
shocked the investing community by announcing that the Company had restated
and lowered first and second quarter 2000 earnings to account for
approximately $2.4 million of under-reported expenses for the period. In
addition, the Company stated that it made key managements changes to
strengthen financial controls and oversight, including the termination of
several members of upper management."
"The Company said that discrepancies in the reporting of expenses surfaced
in a review by outside auditors. Following the review, the Company appointed
a new chairman and stated that defendant Kevin McKay, its chief financial
officer, only appointed for weeks ago, had resigned."
If, as you say, these are just shyster lawyers trying to make a fast buck,
then why on earth would Mercator appoint a new chairman and see its CFO
resign?
Rachel
>Things are looking worse for Mercator. Several class action
>lawsuits just hit the company. For more info on one of them:
>http://biz.yahoo.com/prnews/000824/dc_cmht_me.html
I doubt if any of these lawsuits have any merit
whatever. This is just another manifestation of
a profitable shakedown method developed by
certain unprincipled lawyers.
When a public company suffers a sudden decline in
its stock prices, they file a 'class action suit'
against it, nominally on behalf of the stockholders.
The lawyer who files the suit must have the
endorsement of one member of the affected class.
So these shysters buy one share each of
hundreds of potential target companies in the
names of their secretaries or receptionists.
Once the suit is filed, the plaintiff attorney
also files a sweeping 'discovery' motion,
demanding that the defendant firm turn over tens
of thousands of pages of its internal documents.
Compliance with the discovery demand would cost
the defendant hundreds of thousands or even
millions of dollars. Every page provided must be
vetted by the defendant's own lawyers and
accountants for accuracy and for possible conflict
with confidentiality agreements. And this must be
done before presenting any defense against the
plaintiff's claims. The defendant can ask for
relief from elements of the discovery motion, but
such relief must be requested on an item-by-item
basis, which is just as costly.
Thus, merely by filing such a suit, a plaintiff
lawyer can threaten the target firm with big
legal costs, regardless of the merits of the suit.
Then he offers to settle the suit for less than
the cost of defending it, about $500,000 to
$2,000,000. (Sometimes a judge will dismiss the
suit as frivolous. Then the would-be plaintiff
attorney just writes off his filing fees and
looks for a new victim.)
As plaintiff attorney in a class action suit,
he gets 1/3 of the settlement, a very nice piece
of change. The rest is "distributed to the
shareholders".
Mercator has 28.5 million shares outstanding. A
settlement of $1,000,000 would give the lawyer
$333,000, while the stockholders would get about
2.3 cents per share.
You watch: every one of these suits will be
dismissed or settled for an amount too small
to mean anything to the shareholders.
I'm sorry to have ranted at such length about
something which is somewhat off topic for the
list - but as IT professionals, we can all be
affected by this racket and should be aware of it.
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