August 17, 2005

What's In Your Press Release?

The content of the disclosure that led to a stock price drop continues to be the focal point of post-Dura loss causation analyses. In Sekuk Global Enterprises v. KVH Industries, Inc., 2005 WL 1924202 (D.R.I. Aug. 11, 2005), the plaintiffs claimed that the company engaged in improper accounting practices related to the sales of a key product. The plaintiffs' alleged losses occurred after the company issued a press release announcing reduced quarterly revenue based on lower than expected sales.

In their motion to dismiss, the defendants argued that "the press release and the resulting drop in the price of KVH common stock fails to establish loss caustion because the press release does not attribute the declining revenue to the sales of the [key product]." The court found, however, that the key product was a possible contributor to the lower than expected sales, even if it was not expressly discussed in the press release. Accordingly, the plaintiffs adequately plead loss causation.

Holding: Motion to dismiss denied (except for the claims based on a limited number of inactionable statements).

Posted by Lyle Roberts at August 17, 2005 8:44 PM | TrackBack
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