Investor’s Suit Alleges Insiders at TouchStone Gained by Fraud
A Texas investor has filed suit against TouchStone Software Corp., alleging company insiders manipulated the Huntington Beach software maker’s share price to enrich themselves and defraud investors as part of a public stock offering last year.
The class-action suit, which seeks unspecified damages, alleges that TouchStone executives and board members used false and misleading statements to hype its new Windows ‘95-compatible software and TouchStone stock just prior to a secondary public offering Aug. 25. Investors snapped up 2.3 million shares at $13.50--three to four times what the stock had sold for months before.
TouchStone stock peaked at $17.625, only to plummet later in the year when it was revealed that sales of its Win ’95 Advisor diagnostics software were well below management projections. The stock closed unchanged Friday at $3.875.
The suit, filed Jan. 26 in U.S. District Court in Santa Ana, said investors lost millions while top managers and board members pocketed $12 million by using the public offering to unload a substantial portion of their own TouchStone stock.
“They saw the opportunity of a lifetime to cash in--and they took it,” said San Diego attorney William Lerach, who is representing plaintiff Darrin Caramonta, a Houston consultant who purchased 200 shares of TouchStone in August.
TouchStone executives declined to comment on the suit, issuing a statement which said only that the company “believes the lawsuit is without merit and defends to defend against it vigorously.”
The suit alleges that TouchStone executives violated federal securities laws by deliberately misleading investors regarding the potential of its Win ’95 Advisor software. The suit further that executives falsified financial statements for the first three quarters of the year by counting all software shipped to distributors as sales.
Company officials announced in December that they expected retailers to return more than 100,000 unsold copies of Win ’95 Advisor. The company also announced it would lose money on the year after three quarters of glowing earnings. TouchStone reported a profit of $1.3 million, or 19 cents per share, on sales of $9.7 million for the first nine months of 1995.
