Cree, Inc. manufactures semiconductor products made from silicon carbide.

The original action charges that Defendants violated federal securities laws by issuing a series of materially false and misleading statements to the market throughout the Class Period, statements which had the effect of artificially inflating the market price of the Company's securities. Specifically, the Complaint alleges that Defendants artificially inflated Cree's stock price by making false statements to the marketplace during the class period. Starting on January 14, 2000 Cree filed a prospectus and registration statement in connection with the offering of 2,860,000 shares of common stock. The "Use Of Proceeds" section of the prospectus failed to disclose that Cree would invest $5 million of the offering proceeds in World Theatre, Inc., a speculative start-up company in which C. Eric Hunter, a brother of the Company's Chairman and Chief Executive Officer, was a substantial shareholder. In addition, in December 2000, Cree bought the UltraRF division from Spectrian Corporation for approximately 908,000 shares of Cree common stock and $30 million in cash. Cree misrepresented that UltraRF would be accretive to earnings and that, as part of the acquisition, Spectrian would enter into a 2- year supply agreement requiring it to buy semiconductor parts from Cree. However, Defendants failed to disclose that Spectrian was required to purchase only if Cree sold product to it at the lowest available commercial price. On June 13, 2003, Cree disclosed that Eric Hunter had sued it. The lawsuit revealed that Cree had falsified its books to allow certain executives to receive higher compensation and had intentionally oversold product to C3 Corporation to artificially inflate Cree's income and stock price. Cree's stock dropped nearly 19% on the news.

In a press release dated September 2, 2004, the lawsuit was dismissed. The Honorable Frank W. Bullock Jr., district court judge in Greensboro, N.C., wrote in an order that the case against the Company is deficient. He gave the investor group 45 days to file an amended Complaint.

The Plaintiffs filed a further amended Complaint on October 14, 2004, asserting essentially the same claims and seeking the same relief as in the prior complaint.

In a press release dated August 3, 2005, Cree announced that in a decision entered on August 2, 2005, the United States District Court for the Middle District of North Carolina dismissed "in its entirety with prejudice" the consolidated class action Complaint previously pending against Cree and certain of its current and former directors and officers. The Court's dismissal applies to all of the Plaintiffs and all of their claims that were still pending from the actions originally filed in 2003.

On August 31, 2005, the Plaintiff filed a notice of appeal. The appeal was then pending in the Fourth Circuit Court of Appeals.

According to an article dated February 26, 2007, a divided U.S. Court of Appeals for the Fourth Circuit Feb. 20 affirmed dismissal of a class securities fraud suit challenging a series of allegedly sham deals by Durham, N.C.-based Cree involving "round-tripping" and "channel stuffing" (Teachers' Retirement System of Louisiana v. Hunter, 4th Cir., No. 05-1988, 2/20/07). Writing for the majority, Judge Paul Niemeyer found various deficiencies in the Plaintiffs' Complaint, including the pleading of loss causation. "[W]e conclude that a plaintiff purporting to allege a securities fraud claim must not only prove loss causation--that the material misrepresentations or omissions alleged actually caused the loss for which the plaintiff seeks damages--but he must also plead it with sufficient specificity to enable the court to evaluate whether the necessary causal link exists," Niemeyer declared. The Plaintiffs failed to meet this standard, he concluded.