News Alert from Capital District Business Review via Quote.com
Topic: CAI Wireless Systems
Quote.com News Item #1616274
Headline: CAI claims attorneys led 'frivolous' lawsuit
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A class-action suit brought by a well-known New York City law firm
against CAI Wireless Systems Inc. of Albany has left the head of the
wireless cable television service provider hopping mad and vowing a
fight to clear his company's name.
The suit, filed Nov. 21 in U.S. District Court in Albany by
Milberg Weiss Bershad and Hynes & Lerach LLP of Manhattan, claims CAI
executives defrauded shareholders to artificially inflate the price
of the company's stock.
But while those charges are serious ones, CAI Chairman and Chief
Executive Officer Jared Abbruzzese is more angry than worried.
"We feel this {lawsuit} is groundless and frivolous," Abbruzzese
said. "Their assumptions are erroneous. We intend to fight it
vigorously. It is a horrible waste of the company's assets."
Abbruzzese had equal disdain for Milberg Weiss, which is widely
known in legal circles for bringing similar class-action suits.
"This reminds me of attorneys showing up after a plane accident,"
Abbruzzese said.
Milberg Weiss initiated a similar class-action suit earlier this
year against WellCare Management Group Inc., a Kingston-based health
maintenance organization with offices in Albany. In that suit, the
HMO and two of its top executives were accused of a "deceptive
course of business" that artificially inflated the price of the
company's stock.
"Anybody who does corporate law has heard of them {Milberg
Weiss}," said Richard Honen, a partner in the Albany law firm Honen &
Wood P.C. who specializes in securities and corporate law; he is not
connected with the CAI suit. "They specialize in shareholder
lawsuits. They work on contingency fees; they're like the personal
injury attorneys of corporate law."
The suit was filed on behalf of three CAI shareholders-William
Hughes, Michael Walsh and Irving Ravens. It was not disclosed in the
suit where the three men reside.
Ralph Stone, an attorney with Milberg Weiss who is handling the
CAI case, did not return telephone calls seeking comment.
The suit states that although the total number of class members to
the action is unknown at this time, they "are believed to number in
the thousands."
The plaintiffs are asking for unspecified damages and legal fees.
The suit contends that CAI knowingly released false information
about the company's financial health and certain technologies it was
involved in, just to inflate the price of stock. And when the stock
went high enough, CAI executives reaped huge financial returns.
CAI is the largest wireless cable television company in the
country, with operational systems in Albany, New York City,
Rochester and Norfolk/Virginia Beach, Va. The company also has
licenses to operate systems in Syracuse, Buffalo, Boston, Hartford,
Conn., and Providence, R.I.
CAI also controls wireless systems in Philadelphia, Baltimore,
Washington, D.C., and Pittsburgh, through its acquisition of several
other wireless cable companies.
The suit claims CAI continuously painted a rosy financial picture,
when in fact it was losing large amounts of money each year; hid
problems with its wireless cable television systems; and also
concealed inherent problems associated with a wireless Internet
service that would beam information to users at more than 300 times
the current rate of speed.
But it was the Internet announcement that caused CAI shares to
skyrocket. On May 24, the day after CAI issued a press release
saying it was testing a new wireless Internet service that would
transmit information digitally to users at a rate of 10 megabits per
second, CAI's stock leaped from just under $8 a share to more than
$13 a share.
Although any public company likes to see its stock rise, a very
sharp rise can give some CEOs cause for concern. And Abbruzzese, the
CAI chairman, was no exception.
"We were concerned when the stock spiked," Abbruzzese said. "It's
when you have wild swings in stocks that you see these {shareholder}
suits launched."
The stock then began a steady decline, leveling off at about $8 a
share in mid-September.
But on Oct. 3, CAI stock took its biggest hit, dropping more than
$2, to $5.25, on news that its agreement with two telephone
companies-Bell Atlantic Corp. of Philadelphia and NYNEX Corp. of New
York City-would be delayed. The stock continued to fall during
furious trading-more than 10 million shares changed hands in four
days-bottoming out at $4.125 a share Oct. 7. CAI's 52-week high was
$17.50 a share.
The stock has continued to fall, closing at $3.0625 a share Nov.
26.
NYNEX and Bell Atlantic became involved with CAI in 1995, lending
the company $100 million with the option to purchase up to 45
percent of the company's stock. When news came that the deal, called
the BANX agreement, would be delayed, it caused one of CAI's biggest
proponents to downgrade a recommendation on the stock.
Gerard Klauer Mattison & Co. Inc., a New York City investment
banker, shifted its recommendation on CAI from a "buy" to a "hold,"
citing three factors: uncertainty surrounding the BANX agreement;
the unexpected resignation of Frank Pereira, president of Bell
Atlantic Video Services and an early proponent of wireless cable;
and problems concerning wireless line-of-sight technology.
"We believe Bell Atlantic ... may be losing its enthusiasm for
wireless cable due to the recent and unexpected loss of an internal
champion {Pereira} and perceived uncertainty regarding line-of-sight
coverage," stated the Oct. 3 Gerard Klauer report.
Wireless cable systems utilize microwave technology to transmit
television signals through the air. Also called multichannel
multipoint distribution service, or MMDS, wireless cable uses a
frequency spectrum allocated by the Federal Communications
Commission and licensed to each provider of service.
But one of the drawbacks to wireless cable has been that in order
for customers to receive service, the transmission signal must have
a clear path to their receiving antenna. Any obstacles-including
buildings or trees-will make service to a customer nearly impossible.
CAI, as well as other wireless cable companies, had hoped that new
transmission technology would solve the line-of-sight problem,
allowing the signal to pass through obstacles. But in preliminary
testing, this technology has not performed up to expectations.
The class-action suit alleges that CAI knew of the drawbacks all
along, but chose to keep them from investors and the public in order
to inflate the price of the stock.
But proving or disproving that contention could be extremely
difficult.
Honen, the Albany attorney, said suits of this type can take years
to litigate. He said discovery alone could take months or even years
as the plaintiffs search through company documents, reports to
analysts and memos looking for a "smoking gun" that would prove CAI
executives acted in an unlawful manner.
However, many of these cases never even reach the trial stage,
Honen added. "Most of them are settled," he said.
As such shareholder suits have increased over the years, they have
had an unexpected effect on public companies, Honen said.
"What you are going to get to is now public companies are going to
want to give out as little information as possible because they get
involved in suits like this," he said.
Abbruzzese, the CAI chairman, even expressed doubt that the suit
was initiated by the three shareholders named.
"Our view is this is not a case of a couple of shareholders
running to attorneys with a problem," he said. "This is a case of
overzealous legal minds." |
