Cree's troubles not over yet
By JONATHAN B. COX, Staff Writer
Cree investors may breathe a sigh of relief after the company's first court victory this week in a $3.2 billion legal battle, but analysts say the stock is unlikely to rebound quickly.
U.S. District Judge Frank W. Bullock Jr. on Thursday rejected Cree co-founder Eric Hunter's allegations that the company and its Chairman F. Neal Hunter, his brother, instigated threats against him, his wife and children. The decision was a success for the Durham semiconductor maker, but analysts said it must be tempered. Bullock also said he wouldn't rule on the main fraud case before October.
That means the company still must contend with at least two more months of uncertainty about the lawsuit, an informal U.S. Securities and Exchange Commission inquiry and concerns about more sluggish growth .
Thursday's "decision didn't really change those other things," said Michael Bertz, analyst with Morgan Keegan & Co. "It still doesn't eliminate the overhang."
Cree shares rose 41 cents to $13.93 Friday. They have fallen 37 percent since Eric Hunter filed his lawsuit June 12.
Eric Hunter contends that Cree and his brother engaged in improper business dealings dating to August 1995, shortly after Eric Hunter relinquished management control . After he tried to report problems to Cree officials, Eric Hunter says he was harassed and assaulted to keep quiet.
He says he went to the SEC in late May, before filing suit. Cree disclosed the agency's inquiry in July. Some wonder why he didn't come forward sooner.
"What is it now that triggered him to want this lawsuit?" asked Peter Reiss, a stockbroker with Paulson Investment Co., which helped take Cree public and owns shares.
Eric Hunter says the alleged harassment got so bad he had to take action to protect his family.
In a Greensboro courtroom Thursday, Cree's attorneys suggested his motive might have been financial. They questioned whether he asked Cree to accelerate a stock option plan agreed to when he stepped down as chairman . The options vest on a set schedule, and Eric Hunter said he has earned about $1.5 million, after taxes.
He didn't directly answer the question but said he wanted the alleged threats to stop and wanted out of Cree.
Eric Hunter gave few straight answers Thursday, questioning attorneys and appearing annoyed at times. He blamed his demeanor on pain medication he was taking after an alleged beating.
"I think his actions of [Thursday] will show that he's probably the best witness for Cree," Reiss said. "I frankly think investors aren't as concerned with Eric's suit as they are about what may happen with the SEC."
Investors also have punished Cree after it lowered expectations for fiscal first-quarter earnings. Cree said higher legal and research costs will hurt profit.
And there's no way to know when the lawsuit will conclude.
"I am convinced [Eric Hunter] has no further evidence to support his claims of securities fraud," said Dale Pfau, an analyst with CIBC World Markets. "On the other hand, we just don't have anything definitive. This judge could still say 'let's go to court'."
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Cree Case has Mixed Start
By JONATHAN B. COX, Staff Writer
GREENSBORO -- A federal judge Thursday rejected allegations that Cree and its chairman harassed co-founder Eric Hunter, a victory for the semiconductor maker in the first round of a $3.2 billion legal fight that is likely to drag on for months.
U.S. District Judge Frank W. Bullock Jr. turned down a request by Eric Hunter and his wife, Jocelyn, to prevent the Durham company from threatening or harassing him and his family. The couple contends that Cree and its chairman, F. Neal Hunter, Eric Hunter's brother, were responsible for physical and verbal abuse lodged against them after the pair threatened to report allegations of corporate fraud to securities regulators.
But Bullock also said he likely won't rule on Cree's motion to toss out the fraud lawsuit until at least mid-October, causing lingering uncertainty for the company.
Eric Hunter, the only person to take the stand during the five-hour hearing, said his brother warned him that "I will destroy you" if he went to the U.S. Securities and Exchange Commission. In rambling testimony, he then described a burglary at his Hilton Head, S.C., home, a family snowball fight in which he was injured, occasions when he said he was followed in Europe, and threats received over the telephone and written on his property.
The judge said he wasn't convinced that Eric Hunter needed to be protected from his brother.
"There's nothing that links that to Neal Hunter or Cree whatsoever, other than the inference you would have the court make that it had to be Cree and Neal Hunter because who else would have done it," Bullock said. "The fact that you allege it doesn't make it true."
Bullock said granting Eric Hunter's request without solid evidence the company or his younger sibling might have instigated the alleged harassment could improperly damage their reputations.
"Isn't that akin to telling a model husband to stop beating your wife?" the judge asked. "I think it would be irresponsible for the court to enter an order to that effect."
The company has already suffered since the lawsuit was filed June 12. Cree's shares have fallen 40 percent, in part because of the suit, and it has become subject to an informal inquiry by the SEC. Cree shares rose 15 cents Thursday to $13.52.
Eric Hunter contends that Cree and his brother lied to investors and used inappropriate transactions to help the semiconductor maker's bottom line. He sought to amend his complaint five times within a matter of weeks of filing it to add additional details and other parties, including Bank of America, to the suit.
Those efforts drew scrutiny Thursday, with attorneys for Cree and Neal Hunter saying the only intent was to drum up media coverage of the allegations. The judge said he, too, was interested in the number of filings in the case -- Bullock said it had to be near a record -- and cautioned attorneys about their interactions with the press.
"It strikes this court that there was a rush to get this case filed before there was a very thorough investigation" of the allegations, Bullock said.
Bullock allowed the amendments submitted so far, but said other additions would be allowed only in exceptional circumstances.
"The court made it clear that by allowing the amended complaint, it was in no way expressing a view that the complaint has any merit," Cree Chief Executive Chuck Swoboda said in a statement after the hearing. "We continue to believe that the lawsuit is without merit and look forward to the court hearing our motion to dismiss."
Mike Unti, attorney for Eric and Jocelyn Hunter, declined to comment after the hearing.
Attorneys for Cree are working to undermine evidence that Eric Hunter has presented in the case. An affidavit filed this week, for instance, called into question the credentials of an investigator his attorney sent to Interlaken, Switzerland, to monitor the security of Eric Hunter, his wife and two sons while they lived there this summer.
The director of North Carolina's Private Protective Services Board filed sworn testimony that the investigator is not licensed in the state.
Eric Hunter tried to bolster his position from the witness stand Thursday, questioning the motives of family members who contend that he is mentally unstable. He also outlined some of his beliefs about alleged financial wrongdoing at Cree.
But his testimony rambled, which he blamed on pain medication. Eric Hunter said that he was beaten by his wife's uncle while in Cleveland, Ohio, earlier this week. He was supported while walking, and Unti told the court that Jocelyn Hunter was taking him to the hospital when he left the courtroom.
Neal Hunter, flanked by lawyers, watched his brother from the opposite side of the courtroom, but the two never spoke. A third brother, Jeff Hunter, whom Eric Hunter also has sued, sat in the courtroom.
"I'm not a family counselor; I can certainly suggest it would be wonderful if the three brothers could get together and iron out their problems," Bullock said.
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