AST Research Settles Lawsuit Over Earnings : Markets: Shareholders said the Irvine company misled investors after it acquired Tandy Corp.’s computer operations.
AST Research Inc. of Irvine has settled a shareholders’ lawsuit that accuses the computer maker of misleading investors about the company’s earnings after it acquired Tandy Corp.’s personal computer manufacturing operations in 1993.
The settlement, the details of which are being kept secret until a federal court approves it Monday, was reached in mid-trial Aug. 17 as the plaintiffs neared the end of their case. A memorandum of understanding outlining the settlement was filed this week under seal.
“Under the circumstances, it’s a good settlement for the shareholders,” said Mark Rifkin, one of their lawyers.
Most of the claims, he pointed out, already had been dismissed by U.S. District Judge Stephen V. Wilson, and shareholders wound up taking only one issue to trial.
The company and its chairman, Safi U. Qureshey, declined to discuss the settlement, and their defense attorneys were unavailable for comment.
AST’s stock leaped to $33 a share after it acquired the Tandy business for $175 million in July, 1993. But the following March, the stock began to tumble amid rumors of possible price cuts and troubles integrating the two operations. It hit a low of $12.875 a share three months later.
Shareholders who bought stock in the first nine months after the Tandy acquisition asserted at the trial that AST artificially inflated earnings by hiding reduced prices--in essence, lost profits--on its premier Premmia line of computers.
They accused the company of improperly charging off $9.5 million in lost profits to a special $125-million restructuring fund set up to absorb the costs of the Tandy computer purchase. The fund wasn’t set up to absorb normal operating losses, they argued.
The defense contended that nothing was improper about using the fund to absorb the costs of “repositioning” AST and Tandy products. In addition, the company said that accounting standards at the time were ambiguous and that the Big 6 accounting firm of Ernst & Young approved the charge-offs to the restructuring fund.
The trial, which began Aug. 9, often featured Judge Wilson questioning witnesses himself and showing exasperation particularly with plaintiffs’ lawyers.
He even coached the defense at one point. After dismissing the jury for the day, Wilson asked defense lawyers how they planned to argue their case in light of somewhat damaging testimony that arose that day. Without waiting for an answer, Wilson suggested three alternative arguments they could make to the jury.
Both sides will return to court Monday to make the settlement final and discuss other issues, including attorney fees for plaintiffs’ counsel. In class actions, the court must approve attorney fees.
