According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2002, by a Final Order entered on May 29, 2002, a United States District Court Judge dismissed the consolidated amended complaint. The Final Order was accompanied by a Memorandum Opinion granting defendants' motion to dismiss the amended consolidated complaint for failure to state a claim. In the Memorandum Opinion, the Court found that the plaintiffs had not pleaded facts raising a strong inference that any disclosure challenged was made with fraudulent intent or was materially misleading or omissive.
As reported by the same SEC filing, four purported class action lawsuits were filed in the United States District Court for the Western District of Virginia. One of the complaints was dismissed voluntarily. The remaining cases were consolidated and an amended consolidated complaint, which added as a defendant the Company's Executive Vice President of Marketing and Business Development and a director of the Company, was filed on December 17, 2001. On or about January 31, 2002, the defendants filed a motion to have the amended consolidated complaint dismissed with prejudice.
The original complaint charges defendants with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder by issuing a series of material misrepresentations to the market between, April 24, 2001 through June 18, 2001 thereby artificially inflating the price of Trex securities.
The Complaint alleges that throughout the Class Period, the Company repeatedly issued press releases highlighting the Company's strong sales revenue growth and earnings growth. These statements were materially false and misleading because they failed to disclose that (1) the company had shipped to their customers product in quantities far in excess of the actual demand which resulted in inventory build-up at its customers; and (2) the excess inventory at the customer level resulted in the company not reasonably believing it could achieve $81 million in first half revenues for 2001 . Finally, on June 18, 2001, the company revealed that because of its excess inventories at the customers, it had experienced substantially reduced sales in April and May and that Trex expected to achieve only $66 to $68 million in revenues for the first half of 2001. As a result of this disclosure, Trex's stock price fell $7.98 to close at $18.50 on June 19, with over 1.3 million shares traded.