CHICAGO (CN) – A federal judge refused to allow Motorola to duck a shareholder class action that claims executives inflated share prices by concealing delays on the rollout date of new 3G phones; in emails, Motorola execs referred to “losing our ass” to the tune of hundreds of millions of dollars.
Lead plaintiff Eric Silverman, suing on behalf of himself and anyone who bought Motorola securities between July 2006 and January 2007, claimed the telecommunications giant violated the Securities and Exchange Act when it repeatedly assured shareholders it would roll out new 3G phones before Thanksgiving in 2006.
But Freescale Semiconductor, the vendor Motorola relied on to produce integrated circuits for the new gadgets, repeatedly failed to deliver, delaying the release of the handsets until January 2007, missing the entire Christmas shopping season and causing an “earnings gap” of $1.1 billion, the class claimed.
Motorola allegedly knew there was little chance that its 3G products line would contribute to fourth quarter earnings, but still assured investors that the line would deliver record earnings.
Motorola moved for summary judgment, claiming it honestly expected 3G phones to be released in the fourth quarter of 2006, that it never intentionally mislead investors and that investors can’t show that they lost money as a direct consequence of Motorola’s communications.
But the class claimed a flurry of the company’s internal emails in August and September 2006 reveal a different story.
About the delays to one planned product launch, an executive in August 2006 sent an email bearing the title, “this is worse than I thought possible,” according to the ruling, even as the company was releasing public statements like “product launches are on track” and “we’re bringing five new products into the Christmas selling season,” and similar claims indicating high expectations of success.
In another email, an electrical engineer allegedly called the delays “a serious show stopper.”
The company’s lead platform engineer noted that “the considerable consequences will be our stock price sinking because we are losing our ass on 3G products.”
And the president of Motorola’s Mobile Device Division sent out an email saying “3G has lost 365 M dollars since beginning of the year! We must stop the bleeding!” the class claims.
Statements like these indicate that Motorola may well have intended to defraud or mislead its investors, wrote U.S. District Judge Amy St. Eve, who refused to dismiss the case.
“A reasonable jury could construe them as misleading investors into believing that Motorola would be ready to introduce its 3G phones en masse,” the judge wrote about the company’s public statements.
Motorola “vigorously dispute(s) the import of this evidence,” arguing that the emails are “more limited in relevance than plaintiffs maintain,” according to the ruling.
“Although the evidence introduced at trial may vindicate them in this respect … it will be for the jury to resolve the dispute,” St. Eve wrote.