(CN) - A federal judge in Manhattan rejected AT&T's attempt to scrap a lawsuit accusing it of misleading common-stock investors in connection with the initial public offering of its wireless "tracking stock."
The two plaintiffs, Robert Cassian Anderson and Rodney Anderson, claimed AT&T failed to disclose the company's true financial condition at the time of the IPO, including a poor first quarter. The telecommunications company moved for summary judgment on the grounds that it had no duty to disclose that information to the plaintiffs.
U.S. District Judge Miriam Goldman Cedarbaum said it was too early in the litigation to dismiss the lawsuit.
Former AT&T CEO C. Michael Armstrong is also named in the suit.
On April 26, 2000, AT&T launched the largest IPO in history for the company's "wireless unit," the rulings states. "The stock was intended to 'track' the performance of this unit," Cedarbaum explained.
"Plaintiffs did not purchase any tracking stock. Rather, they bought 425,000 shares of AT&T common stock the day after the IPO," the judge wrote. "They sue Armstrong and AT&T on the theory that statements made in connection with the IPO injured them as buyers of commons stock. More specifically, they argue that two documents issued in connection with the IPO -- an April 24, 2000 press release and the April 26, 2000 wireless IPO prospectus -- withheld information about the overall health of the company, and, in particular, the disappointing first quarter performance of non-wireless units within AT&T," Cedarbaum wrote.
The plaintiffs say they were misled by "cautionary language" in the press release warning investors not to change their estimates of the company's quarterly or annual results based "solely" on the wireless unit.
"Plaintiffs further contend that high-ranking AT&T executives, including Armstrong, knew with certainty about AT&T's dismal performance on April 17, 2000, and that AT&T intentionally withheld the information until after the IPO in order to artificially inflate its success," the ruling states.
The first quarter results were not made public until May 2, which was "substantially later than the average release date for the proceeding two decades," the plaintiffs argued.
"The disclosure severely affected the price of common stock, which fell seven dollars in one day, the largest decline in 14 years," the ruling states. "On that day, plaintiffs' stock declined approximately $3 million in value."
Whether or not AT&T had a duty to disclose the information in question will be decided at trial.
"But such a determination is premature at the summary judgment stage," the judge concluded. "The jury ought to weigh the evidence that the tracking stock reflected the performance of the wireless group and not the company as a whole."
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