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Court Reinstates Fraud Suit
SAN FRANCISCO (AP) -- A federal appeals court reinstated a securities fraud suit by stockholders of a battery technology company Thursday and said a magazine article critical of the company did not contain reasons to suspect fraud.
Valence Technology Inc. and several of its officers were sued in May 1994 after its stock tumbled when it announced it couldn't fulfill a $100 million contract. The company was then based in San Jose; it has since moved to Henderson, Nev.
U.S. District Judge James Ware dismissed the suit because it was filed more than a year after a February 1993 Forbes magazine article that said the company's touted new battery was untested in the real world.
The article also said Valence had a history of insiders and underwriters making money while journalists accepted the company's ''boastful pronouncements.''
Ware ruled that the article put stockholders on notice of the problems that ultimately led to the suit, and therefore started the one-year period in which the suit could be file. But the 9th U.S. Circuit Court of Appeals said the article contained no claim of fraud and ''would not have led a reasonable investor to investigate the possibility of fraud.'' The court noted the company's stock price recovered after dipping briefly following publication of the article.
The court said it was not deciding whether a securities fraud suit had to be filed within a year of the disclosure of facts that should cause a reasonable investor to suspect fraud, or only within a year of the time the investor learns of the alleged fraud. By either standard, the suit was filed on time and should be allowed to proceed, Judge Betty Fletcher said in a 3-0 ruling. Robert P. Feldman, lawyer for Valence and three of its officers, said the company would study the ruling and decide whether to appeal. ''If not, we'll win in the trial court,'' he said.
The suit was filed as a proposed class action on behalf of everyone who bought company stock between May 1992, when it announced new battery technology and made an initial public offering, and August 1994, when it abandoned the new technology. Valence signed a $100 million contract with Motorola in December 1992 to use Valence's new solid electrolyte rechargeable batteries in cellular telephones. Valence raised $167 million in a series of public offerings and saw its stock climb to $20 a share in December 1993, after a drop to $12.50 following the Forbes article.
The stock sank to $5.25 after Valence announced in May 1994 that it could not meet Motorola's specifications, and to $3.37 1/2 in August 1994 when the new battery was scuttled.
The case is Berry vs. Valence Technology, 97-17346. |
