The class action lawsuit against Informix has broadened to include the company's accountants, Ernst & Young.
The amended complaint, filed in the Northern District Court of California, names certain of the company's officers and directors as well as its accountants Ernst & Young. It accuses them of violating federal securities laws by making "misrepresentations about the company's business, earnings growth and ability to continue to achieve profitable growth".
Senior executives at Informix - which earlier this month reported a second quarter loss of $120.5 million - are accused of inflating the company?s performance. They are also accused of selling their holdings in the firm before the truth about its ailing financial condition was revealed last April, when it issued an unexpected profit warning. This sent the share price plummeting to $7 1/8, well down from the class period high of $30 3/8.
No admission has been made of any improper practices by executives, but the company?s recently appointed chief executive Robert Finocchio has admitted that the company?s 1996 results will have to be restated following the discovery of accounting discrepancies. The restatement is likely to turn the reported $97.8 million profit into a small loss.
"We?re restating because [Informix] did not follow in 1996, for some transactions, portions of our existing accounting policy," admitted Finocchio last week. "We found 40 to 50 transactions where our employees did not follow the accounting policy properly."
Alan Hendricks, the company?s chief financial officer, resigned in April after only three months in the job. A replacement has not been announced.
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