Adding to its recent woes, Seattle supercomputer maker Cray was hit yesterday with a shareholder lawsuit alleging it concealed problems...
Adding to its recent woes, Seattle supercomputer maker Cray was hit yesterday with a shareholder lawsuit alleging it concealed problems that led to its stock plummeting last summer.
Cray’s chief lawyer denied the allegations and said he’ll ask to have the suit dismissed.
“We think it is totally without merit,” said Ken Johnson, who is also one of five executives named as defendants.
“The disclosures we made regarding our operations and our finances are accurate and timely and complete,” he said. “We worked very hard to be very frank and candid with our shareholders and we believe we’ve done so.”
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Cray tumbled after a particularly bleak earnings report last July, driven, in part, by weakening defense sales, a contract delay and costs related to an acquisition. It announced layoffs and a restructuring plan, and its chief financial officer left in October.
Changes continued into this spring. In March the company disclosed problems with its internal controls, and that its auditing firm resigned last month. On May 9, the Nasdaq stock market threatened to delist Cray for not including an auditor’s opinion of financial controls in its annual report.
Johnson said Cray is contesting the delisting order at an upcoming hearing.
The lawsuit alleges Cray misled investors, artificially inflated the value of its stock and failed to disclose problems.
So far the suit has one plaintiff — a Pennsylvania woman who bought and sold thousands of shares when Cray stock ran up and down last summer — but her attorneys expect other Cray investors to join the case and seek damages.
Investor Marie Limantour contacted a law firm in Connecticut, which enlisted the help of Seattle attorney Steve Berman. Berman, who has pursued a number of large class-action cases, filed the case Tuesday in U.S. District Court in Seattle, and Cray was served yesterday.
Limantour, reached at home in Durham, Pa., seemed surprised that her name was disclosed by the filing and refused to discuss her Cray investments.
“I actually don’t want my named mentioned anywhere,” she said. “I asked the attorney that my name shouldn’t appear in print, in any press releases.”
The suit alleges that Cray executives profited by selling shares before disclosing problems. Johnson said that’s false and most of the sales were done by brokers acting independently under prearranged sales plans.
Although the suit isn’t the result of accountability regulations such as the Sarbanes-Oxley Act of 2002, disclosures it requires are fodder for the suit.
“I think that there are cases that now arise because of Sarbanes-Oxley,” Berman said. “In other words, when a company is required to report a material weakness or some accounting irregularity because of Sarbanes-Oxley and the company’s stock reacts negatively, I think that aids investors bringing lawsuits because you have the company admitting there’s something wrong.”
Yesterday Cray stock closed at $1.38, down 7 percent. Over the past year, the stock has been as high as $8.03.
Limantour bought 13,100 shares at prices ranging from $2.98 to $7.50 in early 2004. She sold 7,100 shares at prices ranging from $6.55 to $7.53, according to the suit. The status of the other 6,000 shares is not mentioned.
Brier Dudley: 206-515-5687 or email@example.com