Compaq is now facing an overwhelming deluge of lawsuits, accusing the company of violating federal securities law and "defrauding" public investors.
The lawsuits relate to events in February, when a host of Compaq executives sold stock worth $45 million, shortly before the share price slumped following news of a slowdown in PC sales at the company. This information was subsequently suppressed and no further details were given.
Lawsuits were quickly slapped on the company by a number of irate shareholders. (see Newswire 26 March) Since then, at least 12 more law offices have issued class action suits against the PC giant, representing individuals or groups of shareholders.
Lawyers contacted by VNU Newswire said they have had a big response from more shareholders wishing to pursue similar action.
Compaq has been accused of failing to disclose information regarding a slowdown in sales of its products in certain market sectors in North America and Europe, thereby, according to one suit, "defrauding the market".
In the meantime, 11 top executives at Compaq sold hundreds of thousands of their own Compaq shares, worth more than $45 million, prior to the revelation of the sales slowdown. The share price went from a high of $46, down to around $31 in a matter of days.
The suits allege the executives benefited from the "inflated stock price", selling to "an unsuspecting investing public".
Marc Goldman, a lawyer with Houston law firm Weinstein Kitchenoff Scarlato and Goldman, said that he believed the Compaq executives were fully aware of the sales slowdown when they sold their shares.
"We view the quantity of sales involved as indicative of knowledge of trouble," he said. "We have had a tremendous response from large and small investors alike."
Goldman said that neither he nor the plaintiffs have had any response from Compaq.
Anthony Millar, analyst at Richard Holway, commented: "This is a very difficult area. Director share dealings are highly regulated both here and in the US, and it should be fairly clear cut. The public and shareholders look to directors to have the highest integrity. However, the grey area is what did they know at the time."
VNU Newswire has discovered that Compaq was hit with lawsuits at the same time last year, following an almost identical series of events.
Compaq executives sold nearly 2.5 million shares for proceeds of more than $120 million, only for the market to discover shortly after that it had an overstocked inventory, causing its share price to fall. Lawsuits alleged Compaq had failed to reveal this information, while insiders had benefited from the knowledge.
This case is still in progress.
Compaq refuses to comment on the mass of accusations, continuing to hide behind an extremely lengthy quiet period - five weeks in total - up to its results, due out around 22 April. People close to the company say it is extremely concerned about the mounting legal battle it faces.
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