and now the bad news.....
Friday July 25 9:47 PM EDT
Company Press Release
Source: Hagens & Berman
Hagens & Berman: Lawsuit Claims Einstein Noah Bagel Corporation Falsified Earnings Reports, Cost Shareholders Millions
Shareholders Find Big Holes in the Middle of Bagel Bakers' Financial Records
DENVER, Colo., July 25 /PRNewswire/ -- Seattle attorney Steve Berman filed a class action suit today on behalf of Einstein Noah Bagel Corporation (Nasdaq:ENBX) shareholders in Colorado District court, alleging the company's top three officers endorsed false earnings reports showing explosive profits, when in fact the rapidly expanding franchise network was riddled with debt. Unsuspecting purchasers of Einstein Noah Bagel Corp. stock, which peaked at $36.50 a share, lost millions when the stock price tumbled to $11.05 after news of the accounting manipulations broke.
Noah's Bagels marketed the concept of the cozy kosher deli, flying in bagel dough from New York and keeping a kosher kitchen as part of its authentic East Coast atmosphere. Einstein Brothers Bagels banked on fresh bagels baked in a casual neighborhood meeting place. Both retail chains were initially successful, as a bullish market enthusiastically accepted the viability of their store concepts. But according to the suit, as Einstein and Noah's chains lost money, the company began to over-franchise in order to collect concept use royalties and other fees.
Einstein/Noah's then created ``Financed Area Developers'' (FADs) and allegedly shifted losses to the financial statements of these non-public companies. Although Einstein/Noah franchises were losing money prior to the initial public offering, stock prices continued rallying on the illusion of healthy growth fostered by expansion and misleading quarterly reports, states the lawsuit. As franchises continued to lose money, the FADs inevitably began taking losses too.
According to Berman, Einstein/Noah's continued issuing false financial statements through the end of fiscal year 1996 with the full knowledge of CEO Mark Goldston, CFO Eric Carlbourg and Board Chairman Scott Beck.
Berman, representing purchasers of common stock between August 2, 1996 and July 15, 1997, estimates that Einstein/Noah's shareholders lost millions after investing on the basis of a misleading prospectus and false financial data submitted to the Securities Exchange Commission when the company went public. The IPO raised approximately $81 million from investors.
``Einstein/Noah's got caught in a nasty circular trap of re-issuing securities to cover debt and expansion -- furiously creating unprofitable new FADs to keep up the appearances of a healthy company,'' says Berman. ``Then market watchers and shareholders discovered the hole in the middle of Noah's Bagels.''
Attorney Steve Berman, a partner in the Seattle firm of Hagens & Berman, recently gained national attention as legal counsel for 12 states in the landmark tobacco settlement, and for filing suit on behalf of 1.9 million pay-per-view fans who paid to watch Mike Tyson fight Evander Holyfield. |
