Furthermore Roger, I have not been able to discern a correlation between a company receiving this garden variety class action lawsuit alleging management misrepresentations and the company's, and its stock price's, subsequent fortunes. About two years ago PSFT and CTXS were both buried beneath a blizzard of lawsuits alleging rather unholy breaches of investor confidence by management, and both the companies and stocks have performed admirable since. In fact I even purchased a stake in CTXS after its stock price was crippled by the lawsuits believing that I was being afforded an unusually good opportunity to do so. I had the same impulse with PSFT but failed to act, much to my regret. NTI is another one which was buried in class action lawsuits about two years ago, and those lawsuits had, in my opinion, unusually solid grounds. I thought they were goners, but they have risen from the dead, like the Phoenix, as well. In sum, my message is that these lawsuits are usually like flea bites, though once in a while like a a bee sting, and very rarely like a swarm of killer bees.
The lawsuits against Infospace are completely non-exceptional as I judge by the allegations made against them, and as such, are not useful in attempting to predict the company's future. The more I ponder them, the more convinced I am that Naveen Jain's personal wealth probably is key to their being filed at all. He is one big fat juicy target that lawyers representing the "class" must be salivating to reach a settlement with. One thing strikes me as quite odd about these lawsuits--not that they were filed but when they were filed. Reams of technology companies have had analogous lawsuits filed against them this year as just about every technology company's management earnings targets failed to reach fruition in the last several quarters. Usually, though, these lawsuits are filed within a week or two of a company's quarterly report and conference call when it is divulged that the earnings targets weren't met. The time lag can be as little as four days because the law firms are so competitive with each other to participate and be lead counsel. The filing of the lawsuits against Infospace have taken place a month after the last earnings report, during which the only revelations were positive in nature, in my judgment, and a full five months after the unpleasant revelations that came along with the 4Q2000 earnings report in January. I think this delay or hesitation means that the law firms involved know they have a tenuous case and the decision to go ahead with it was not easy. If there were an obvious smoking gun, by my estimation these lawsuits would have come out months ago.
Every technology company management should know by now that publicly disseminating revenue and earnings growth targeted in their business model and then lowering their targets because the original proved to be too optimistic is grounds for a lawsuit. Nowadays, changing your stated goals, however sincere, can be grounds for a lawsuit. The smart thing for these companies to do would be to just shut up and not provide an earnings expectations or guidance to their investor base and just run the company. If that happened thousands of lawyers would be out of work. |
