According to the Company’s FORM 10-Q for the quarterly period ended March 31, 2006, in June, July and August 2002, Perot Systems and certain individuals were named as defendants in eight purported class action lawsuits that allege violations of Rule 10b-5, and, in some of the cases, common law fraud. These suits allege that the Company’s filings with the Securities and Exchange Commission contained material misstatements or omissions of material facts with respect to its activities related to the California energy market. All of these eight cases were consolidated in the Northern District of Texas, Dallas Division in the case of Vincent Milano v. Perot Systems Corporation. On October 19, 2004, the court dismissed the case with leave for plaintiffs to amend. In December 2004, the plaintiffs filed a Second Amended Consolidated Complaint. In March 2006, the district court dismissed the case with prejudice.
The original complaint charges Perot Systems Corp. and certain of its officers and directors with issuing false and misleading statements concerning its business and financial condition. Specifically, the complaint alleges that defendants omitted to disclose crucial facts regarding risky business practices in which Perot Systems was engaged in order to try to obtain new consulting business and generate additional revenues. Specifically, the complaint alleges that Perot Systems had disclosed crucial proprietary information regarding the architecture of California's power grid that could be used to cause artificial congestion on the system to power trader Reliant, that Perot Systems faces substantial potential legal liability due to the possibility that its improper disclosures of proprietary information enabled power traders to exploit such weaknesses in California's power grid for their own profit, and that Perot Systems did not have in place sufficient management controls to prevent its personnel from using confidential information obtained in the course of its consulting work as a selling point in trying to obtain lucrative consulting business. The complaint further alleges that when Wall Street learned of these practices after California State Sen. Joseph Dunn unearthed a Perot Systems sales presentation mapping out strategies to exploit weaknesses and loopholes in the California power grid, Perot Systems' stock tumbled 19% on June 5, 2002
and an additional 11.3% to close at $12.90 on June 6, 2002, down from its class period high of $85.75.