The original complaint charges the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act. As alleged in the Complaint, FreeMarkets creates customized business-to-business, Internet on-line auctions for buyers of industrial parts, raw materials and commodities. Following FreeMarkets’ Initial Public Offering (“IPO”) of 3.6 million shares of its common stock at $48 per share on December 10, 1999, the price of the Company’s common stock soared to as high as $370 per share on January 3, 2000. On January 4, 2000, however, FreeMarkets rushed out an announcement disclosing that General Motors Corporation (“GM”), one of its two largest customers, was cancelling its agreement with the Company, after Bloomberg publicized the comments made by a GM executive that it was switching all of its on-line auction business from FreeMarkets to Commerce One. The fact that the defendants knew that GM had entered into an agreement to set up an on-line auction site with the Company’s chief competitor, Commerce One, prior to the IPO and that they confirmed the cancellation of GM’s agreement with the Company only after that information was made generally known to the public, supports a strong inference that the defendants knew prior to the IPO that GM would terminate its relationship with FreeMarkets in the first quarter of 2000. Moreover, they knew that the disclosure of the expected cancellation of GM’s agreement with the Company in its Registration Statement and Prospectus issued in connection with the IPO on December 10, 1999 would ruin FreeMarkets’ chances of raising $160 million by going public. The defendants therefore sought to conceal the news that GM’s termination of its relationship with FreeMarkets was imminent until after the IPO. As a result of the defendants’ false statements and/or omissions, FreeMarkets common stock traded at artificially inflated prices during the Class Period, soaring to $350 per share at the close of trading on January 3, 2000 before plummeting almost 20% to close at $278.50 per share on January 4, 2000 in heavy trading.
According to the Company’s Form 10-K for the fiscal year ended December 31, 2000, in 2000, ten securities fraud class action complaints were filed against the Company and three executive officers in federal court in Pittsburgh, Pennsylvania, which the court consolidated into a single proceeding. The plaintiffs alleged that the Company and the other defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The Company and the individual defendants moved to dismiss the case on the grounds that the plaintiffs failed to allege facts sufficient to support their claim that the defendants violated the securities laws. On December 27, 2000, the court granted the motion to dismiss, having concluded that the plaintiffs' complaint was legally deficient. Although the court granted the plaintiffs leave to amend their complaint in an attempt to cure its deficiencies, the plaintiffs elected to abandon their claims altogether. On February 16, 2001, the court dismissed the case with prejudice pursuant to a stipulation of voluntary dismissal executed by all parties. The case is now closed. No money or other consideration was given, or will be given, to the plaintiffs or their counsel in exchange for their agreement to dismiss the case.