DALLAS (CN) – Idearc shareholders have filed a federal securities fraud class action against five of the phone book publisher’s current and former officers, claiming they failed to disclose the company’s relaxation of credit standards that resulted in its Chapter 11 bankruptcy filing on March 31.
The class includes all those who bought Idearc shares between Aug. 10, 2007, and the date of the bankruptcy filing.
Formerly known as Verizon Information Services, Idearc is a spinoff of Verizon Communications’ yellow pages business. Idearc operates Superpages.com and publishes the Verizon Yellow Pages.
Shareholders claim that while the company was boasting of its improved and “stringent” credit policies helping to reduce the company’s bad debt into 2007, the defendants failed to disclose the introduction of “relaxed” credit policies in the same year. This resulted in tens of millions of dollars in sales being made to non-creditworthy customers to increase the amount of revenue reported. The plaintiffs say the misrepresentations and omissions amount to an “unrealistically positive assessment” of the company.
Shareholders say this resulted in the accumulation of tens of millions of dollars in uncollectible receivables on the books that were carried into 2008, when the company finally admitted to a “relaxation of certain aspects of the company’s credit policy in mid-2008.”
The company has been forced to write off $47 million in worthless receivables since mid-2008, write-offs that plaintiffs say materially contributed to the bankruptcy filing.
“By failing to disclose the material facts … defendants presented a misleading picture of Idearc’s business and prospects,” according to the complaint. “Defendants’ false and misleading statements had the intended effect and caused Idearc common stock to trade at an artificially inflated level throughout the class period.”
Idearc shares traded as high as $37.39 per share in 2007. They have since plummeted to $0.05 per share and have been delisted by the New York Stock Exchange.
Named as defendants are former CEO Katherine Harless, former CFO Andrew Coticchio, former acting CFO and treasurer Samuel D. Jones, former executive vice president and acting CEO Frank P. Gatto, and CEO Scott W. Klein.
The plaintiffs are represented by Roger Claxton.