According to an article dated March 19, 2008, a judge has dismissed a class action that alleged Legg Mason Inc. and Citigroup Inc. defrauded investors by omitting details of a secondary public offering following a multibillion-dollar unit swap in 2005. Judge Denny Chin of the U.S. District Court for the Southern District of New York said Monday that the plaintiffs had failed to state a claim and comply with pleading requirements in the consolidated amended complaint, which he dismissed with prejudice.
On January 12, 2007 all related cases were consolidated and lead plaintiffs and lead counsel were appointed. A consolidated complaint was filed on April 16, 2007 and the defendants moved to dismiss on June 15, 2007.
The original Complaint alleges that on 6/24/05, Legg Mason announced that it would swap its brokerage unit plus $2.1 billion in stock and cash for Citigroup's $435 billion money-management division and would buy hedge fund firm The Permal Group. Defendants stated the acquisition would be immediately accretive to earnings, have a positive effect on profitability and leave Legg Mason with a "Conservative Balance Sheet". Throughout the Class Period, defendants failed to disclose the following: (i) Legg Mason was unable to successfully integrate Citigroup's worldwide asset management business ("CAM") assets because of a lack of compatible corporate infrastructures; (ii) Citigroup had undisclosed pre-existing sales expenses to third-party brokers; (iii) post-acquisition cost "savings" were unattainable; (iv) Citigroup customers had withdrawn billions of dollars of assets; and (v) the Company's ability to achieve earnings growth was severely strained, due to deteriorating investment returns on Bill Miller's $18.7 billion Legg Mason Value Trust, the Company's flagship equity fund which was having its worse year since 1990.
The complaint further alleges that on or around July 25, 2006 the Company disclosed that the CAM acquisition costs were spiraling and customers were withdrawing funds, putting further pressure on revenues and margins and causing Legg Mason to miss the earnings targets for 1Q 07. On this news, stock price fell below $85 per share.
NOTE: The class action complaint was filed on behalf of all persons who purchased the common stock of Legg Mason, Inc. during the Class Period. Also included are those who acquired shares in a secondary offering on 3/9/06 or through the acquisitions of Permal or Worldwide Asset Management.