After losing 66 percent of its stock value in a little over two months, Manugistics Group Inc. has been hit by at least three suits from shareholders who say the company deceived them about the firm's financial health.
Two suits have been filed against Manugistics in federal court in Baltimore since June 12; the company, which provides inventory management software, is facing additional federal shareholder litigation in Minnesota.
The complaints share the same allegation: That Manugistics made falsely optimistic statements about its finances, which artificially boosted the stock's value, enriched Manugistics' officers and lured investors to buy shares that were doomed to plummet.
"Specifically, Defendants represented, without a reasonable base, that Manugistics earnings for the first quarter of 1998 would meet analysts' expectations," said a suit filed in Baltimore by the Michael A. Bernstein Money Purchase Plan, which bought 200 shares of Manugistics on May 22, the day after Manugistics conceded that it would fall short of those expectations.
That acknowledgment caused Manugistics' stock to plunge from $47.875 to $29.25 in one day.
The suits, which seek unspecified financial damages, claim that Manugistics had known that the trouble and expense of acquisitions and sales force reorganizations would hurt the firm's first-quarter earnings sheet, but failed to share this information soon enough with investors.
The suits also allege that Manugistics officials profited from their insider knowledge. "While representing that Manugistics would
meet analyst expectations Manugistics insiders sold over 118,000 shares of Manugistics stock, for more than $6,750,000, to personally profit from the artificial inflation in Manugistics' stock price which their fraudulent scheme had created," said the Bernstein suit.
Tom FitzGerald, an in-house lawyer for Rockville-based Manugistics, said, "We've learned of the suits. We are reviewing them with our attorneys and will comment when appropriate."
"I don't see fraud here," said Dion Cornett, an analyst at First Analysis Corp. in Chicago. "I think the company missed the quarter, the stock price got hammered and the lawyers jumped on it."
Several legal experts and industry observers said the type of shareholder litigation Manugistics faces has become part of the corporate landscape. "It's very common to see a very significant drop in stock price to be followed by a lawsuit," said Stephen Bainbridge, a professor of corporate law at the University of California, Los Angeles.
Joe Sims, a technology lawyer with Jones, Day, Reavis & Pogue in Washington, said: "There's a whole collection of entrepreneurial plaintiffs' lawyers who do nothing but bring shareholder suits in these cases. It's very common, almost to the point of being viewed as a cost of doing business."
Sims added that such suits are rarely litigated, often ending in out-of-court settlements.
The suits were brought as class actions on behalf of shareholders who bought Manugistics stock during the period when the alleged falsifications took place. One of the suits, filed in Baltimore by Steven Zaltzman of Bryn Mawr, Pa., defines that period as Feb. 13 to May 22; Bernstein's suit extends the period to June 9.
The three cases name Manugistics and its president, chairman and chief executive officer, William M. Gibson, as defendants. Two of the complaints also name Peter Q. Repetti, the company's senior vice president and chief financial officer.
Pub Date: 6/20/98