The original complaint charges Office Depot and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Office Depot is a global supplier of office products and services.
The complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company’s business and financial results. As a result of defendants’ false statements, Office Depot stock traded at artificially inflated prices during the Class Period, reaching a high of $36.41 per share on June 4, 2007. Then on October 29, 2007, before the market opened, the Company announced that it had to delay the distribution of its third-quarter earnings release and related conference call and webcast, previously scheduled to take place on October 30, 2007, due to an independent review by the Audit Committee of the Company’s vendor program funds, relating principally to the timing of the recognition of certain vendor program funds.
On this news, Office Depot’s stock declined $2.86 per share to close at $17.43 per share, a one-day decline of nearly 14% on volume of 30 million shares, over five times the average three-month volume.
According to the complaint, the true facts, which were known by the defendants but concealed from the investing public during the Class Period, were as follows: (a) the Company failed to properly account for its vendor rebates; (b) the Company’s efforts to improve its gross margin by reducing its labor costs also led to a reduction in customer service levels resulting in a loss of customers; and (c) given the more intense competition the Company was experiencing from OfficeMax and Staples and the Company’s aggressive pricing to boost technology sales, the Company had no reasonable basis to make projections about its ability to maintain its gross margin. As a result, the Company’s projections issued during the Class Period for 2007 were at a minimum reckless.
On May 2, 2008, the Court adopted the report and recommendation to consolidate two related actions. On July 2, 2008, a Consolidated Amended Complaint was filed. On September 2, 2008, the defendants filed a motion to dismiss. On March 31, 2009, Judge Daniel T. K. Hurley granted the motion to dismiss with leave to file an amended complaint.
On April 20, 2009, the lead plaintiff filed a Second Consolidated Amended Complaint containing additional allegations. The defendants responded by filing a motion to dismiss on May 21, 2009, which was granted on January 14, 2010. The lead plaintiff filed a Notice of Appeal. On January 31, 2011, the Court entered the Mandate from the U.S. Court of Appeals affirming the judgment of the District Court.