On July 2, 2007, the Lead Plaintiff NECA-IBEW Pension Fund filed a Notice of Appeal to the U.S. Court of Appeals for the Eighth Circuit. On August 8, 2008 the USCA upheld the lower court's ruling of dismissal and the case was closed.
According to a press release dated June 18, 2007, Hutchinson Technology Inc. and its officials June 4 won dismissal in the U.S. District Court for the District of Minnesota of a class securities fraud suit alleging that the computer component manufacturer's stock price was artificially inflated due to too-low return allowances and misrepresentations as to customer demand (In re Hutchinson Technology Inc. Securities Litigation, D. Minn., Case No. 05-CV-2095 (PJS/JJG), 6/4/07). In the course of his opinion, Judge Patrick Schiltz declared that the group pleading doctrine--which permits plaintiffs to attribute collective statements such as press releases and public filings to individuals with direct involvement in the every day business of the company--is no longer viable in the wake of the Private Securities Litigation Reform Act.
According to the Company’s FORM 10-Q for the quarterly period ended June 25, 2006, the Company and six of its present executive officers, two of whom are directors, are named as defendants in a Consolidated Complaint filed by several investors in the U.S. District Court for the District of Minnesota on May 1, 2006. On June 30, 2006, defendants filed a motion to dismiss the Consolidated Complaint. Briefing on the motion is underway. The motion is scheduled for hearing on December 4, 2006.
The original Complaint alleges that Hutchinson violated federal securities laws. Specifically, Hutchinson made positive statements concerning its history of beating guidance issued by the defendants and its success in manufacturing and marketing its products. Defendants' statements were materially false and misleading because defendants overstated the demand for Hutchinson's products, defendants failed to disclose that a shift in the mix of products toward new, low-yielding products was negatively impacting the Company's business and prospects, and defendants failed to disclose that they had not implemented an adequate system of internal controls. As a result of the foregoing, defendants' statements that Hutchinson was operating according to plan, and their guidance lacked any reasonable basis in fact. While, the price of Hutchinson common stock was artificially inflated, defendants sold their personally-held shares of Hutchinson stock for more than $12.1 million in proceeds.
The complaint further alleges that on or around August 30, 2005, Hutchinson issued a press release announcing lowered guidance for the fourth quarter 2005. The Company stated that earnings would be $0.05 per share, compared to previous guidance of $0.65, and that the Company's gross margins would fall as low as 19%, significantly lower than the Company's previous estimate of as high as 30%. On this news, Hutchinson stock fell $5.35 per share, or 17%, from its closing price of $31.51 on August 29, 2005, to $26.16 on August 30, 2005.