With BlackBerry Stock in Tailspin, Investors Sue
(CN) - BlackBerry misled investors about its financial state and the success of its BlackBerry 10 smartphone, inflating the value of its stock, a class claims in Federal Court.
Lead plaintiff Marvin Pearlstein claims BlackBerry and its executives hid the true state of the company's operations and prospects, leading investors to buy stock at artificially inflated prices.
When BlackBerry announced its real financial condition last month, including massive charges and layoffs, its stock declined rapidly, causing losses for thousands of investors, according to the federal complaint filed Friday in Manhattan.
Pearlstein claims to represent thousands of BlackBerry shareholders who bought stock between Sept. 27, 2012, and Sept. 20, 2013.
BlackBerry's CEO Thorsten Heins and Chief Financial Officer Brian Bidulka are also named as defendants.
"Specifically, the company failed to inform investors that, contrary to defendants' statements touting the company's new BlackBerry 10 line of smart phones and the financial strength of BlackBerry, the company was not on the road to recovery and re-emerging as a lead player in the wireless communications industry," the complaint states. "In reality, the BlackBerry 10 was not well-received by the market, and the company was forced to write down a nearly $1 billion charge related to unsold BlackBerry 10 devices and lay off approximately 4,500 employees, totaling approximately 40 percent of its total workforce."
Waterloo, Ontario-based BlackBerry, formerly known as Research in Motion, knowingly misled investors in various news releases and quarterly conference calls, in which it claimed that BlackBerry continued to be "a financially strong company." The company also allegedly claimed to have successfully implemented a cost-saving program that put it "on the path to recovery."
BlackBerry's chief legal officer did not return a request for comment.
Pearlstein says he and other investors were told that customers were taking a shine to BlackBerry 10, and that the company had made progress as a result.
BlackBerry's misrepresentations and omissions directly caused the recent plunge in BlackBerry stock, according to the complaint.
After BlackBerry issued the press release on Sept. 20, shares plunged as much as 23 percent to $8.06, before bouncing back a bit. They closed at $8.01 on Sept. 25, according to the lawsuit.
CNBC reported, however, that some financial analysts attributed the plunge to BlackBerry's announcing of its intention to sell the company.
"The company has sailed off a cliff," said Collin Gillis, an analyst at BGC Partners. "What do you expect when you announce you're up for sale? Who wants to commit to a platform that could possibly be shut down?"
Class actions are nothing new to BlackBerry.
A federal judge in March dismissed a 2011 lawsuit alleging that Research in Motion had tried to obscure its falling market position by misrepresenting its financial condition and the prospects for its devices.
A BlackBerry owner filed another class action against the company for its system crash of October 2011.
Pearlstein seeks class certification and damages for securities laws violations.
He is represented by Kim Miller with Kahn Swick & Foti.