Jim,
I read through the stories you cited. The first one, which has the most detail, is simply a press release from the plaintiffs' law firm. The other stories merely refer to the fact that the suit was filed.
I try to be impartial when evaluating the impact of law suits on companies, because they often create buying opportunities. Here is how I read this so far. I hope it helps your analysis.
1.) the percentage reduction in stock ownership by the insiders is ludicrously misstated. Most of the top guys have large unexercised option positions. Apparently, these options were not included in the denominator when the plaintiff lawyers issued their release saying that the management had almost divested itself of ownership. (Didn't Case have to raise a lot of cash in this period to pay for a divorce?)
2.) the real meat to this action, if any, is that Ernst and Young is essentially being charged with malpractice. If the earlier financial reports, which carried marketing expense as an asset, are decided not to be in compliance with GAAP, E&Y is on the hook, not AOL.
3.) Even though AOL is a defendant, this is due to the nature of a derivative action. Shareholders are sueing AOL to force it to take action against persons who these shareholders consider to be wrongdoers. In this case, the actual wrongdoers, if there were a judgment, are the individuals and E&Y.
Realistically, the plaintiffs' law firm, in spite of the press release, is not going to try this case. I think they do a lot of 16b-3 stuff, searching for technical violations of the 6 month short-swing sale rule, pouncing and settling on "violators" who are caught up in the technicalities of this paricular rule.
Look for discovery, motions back and forth, and some sort of settlement. There are plenty of reasons to be a bear on this stock, but this suit is not one of them.
Regards |
