Investor Sues FileNet Over ‘False’ Reports
A New York shareholder has sued FileNet Corp., alleging that the technology company misled investors by issuing statements that portrayed its financial prospects as brighter than they actually were.
In a suit filed Wednesday in federal court in Los Angeles, shareholder Michael Friedman alleges that during a six-month period ending in late September, FileNet “published false and misleading reports, and concealed material information, concerning its financial condition and future prospects for its principal products.”
The suit names as defendants FileNet and its directors--including company President Ted Smith--and Mark St. Clare, a vice president and chief financial officer.
In a statement, Smith said that the suit is “without merit” and that the Costa Mesa-based company will “vigorously contest” the action.
The suit cites a number of statements and reports made by FileNet management and by securities analysts between late March and late September that it claims indicated generally favorable business prospects for the company. It alleges that these statements “were misleading in the context in which they were made because they omitted to reveal, among other things, FileNet was facing increasing resistance on sales, and that this would have a material adverse impact on revenues and earnings.”
The suit claims that during that same period, FileNet director Frederick K. Fluegal sold more than 420,000 shares of FileNet stock based on “inside information” that the stock price was “artificially inflated.” But FileNet’s St. Clare said in an interview that Fluegal did not sell the shares on the open market; rather, he distributed them to limited partners in his San Francisco venture capital firm, Matrix.
On Sept. 25, however, FileNet announced that it expected to curb hiring and would report an unexpected loss for the third quarter ended Sept. 30. The company said prospective customers were canceling or delaying orders due to “the increasingly negative economic environment.”
That announcement sent FileNet’s stock plunging 43% that day, to $3.875 per share. On Oct. 8, FileNet said it expected to report a third-quarter loss of $500,000 on revenue of $22 million.
