Oracle president Ray Lane is among five senior company executives accused of $28 million worth of illegal insider trading, according to a class action suit filed against the software firm following its poor second quarter results.
Lane and four others, including chief financial officer Jeffrey Henley, are accused of hyping expectations of database and applications revenue in the second quarter, ended 30 November, following lower than expected growth in the core database business in the first quarter, ended 31 August. The suit alleges that the defendants assured investors that the first quarter had been an anomaly, growth was back on track and investors could expect earnings of 23 cents per share.
In the event, when the second quarter results were released on 9 December, they were below market expectations, sending the company?s stock crashing by over one-third in one day. "Instead of Oracle generating EPS gains of at least 20 per cent in fiscal 1998, Oracle would be lucky to generate any growth in EPS at all during fiscal 1998," claims the suit.
The class action contends that, prior to the release of the results, five Oracle executives sold 800,000 split-adjusted shares of Oracle stock at prices as high as $36.86. Following the release of the results, the share price hit $22 15/16. This includes, claims the suit, $7 million of shares sold by Lane.
Ironically, one of the biggest losers from the crash of Oracle stock was the company?s chief executive Larry Ellison who saw over $2 billion wiped off of his personal fortune.
Oracle?s share price continued to fall on Friday to a year low of $21 when Jim Mendelson, an analyst with Soundview Financial Group, cut his 1998 estimates to 85 cents a share from 95 cents. The market was also disturbed by unconfirmed rumours of a corporate restructuring early in the New Year with possible redundancies as a result.
Those rumours were given added weight by the announcement on Friday that Oracle subsidiary Network Computer Inc has axed 15 per cent of its workforce, the second round of cuts in less than six months. Some 30 NCI employees, mostly sales staff, have been reassigned to jobs within Oracle. In July NCI cut 21 jobs and reassigned 20 others following its acquisition of Navio.
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