According to a complaint dated January 16, 2009, the Complaint charges Rackable and certain of the Company's former executive officers with violations of federal securities laws. Rackable engages in the design, manufacture, and implementation of highly scalable computer servers and high-capacity storage systems.
The Complaint alleges that throughout the Class Period defendants knew or recklessly disregarded that their public statements concerning Rackable's business, operations and prospects were materially false and misleading. Specifically, the Complaint alleges that defendants' public statements were false and misleading or failed to disclose or indicate the following: (1) that the Company was experiencing competitive pressure; (2) that competition was increasing; (3) that, due to increasing competition, the Company was able to maintain and expand its customer base only by aggressively lowering its contract prices; (4) that, as such, the Company was experiencing dramatic erosion of gross margin attainment in the Company's largest accounts as focused competitors aggressively dropped prices; (5) that price increases for DDR (double data rate) memory were accelerating faster than the Company represented to investors; (6) that, as a result of the above, the Company was unlikely to meet its quarterly gross margin targets; (7) that the Company lacked effective internal and financial controls; and (8) as a result of the foregoing, that statements made by the Company and management during the Class Period concerning the Company's business, operations and prospects were lacking any reasonable basis.
On January 16, 2007 Rackable shocked the market when it reported preliminary financial results for fourth quarter 2006 and that the Company had achieved a gross margin of between only 19.2% and 19.7%. On this news, shares of Rackable declined $12.44 per share, more than 38%, to close on January 17, 2007, at $19.98 per share, on unusually heavy trading volume.
Approximately two weeks later, on February 1, 2007, Rackable shares continued their downward slide when the Company announced its fourth quarter financial results and reported a non-GAAP gross margin of 19.8%, a significant reduction from 24.9% for the same period in the prior year. On this news, shares of Rackable declined an additional $3.65 per share, nearly 18%, to close on February 2, 2007, at $16.69 per share, on unusually heavy volume.
On April 4, 2007 Rackable further shocked the market when the Company revealed that its GAAP and non-GAAP gross margins for first quarter 2007 would be approximately 30% lower than the Company's previously communicated expectations and that the primary factor impacting gross margins in the first quarter was the intensity of competition in the Company's three largest accounts. On this news, shares of Rackable declined $2.64 per share, more than 15%, to close on April 5, 2007, at $14.24 per share, on unusually heavy volume.
On April 26, 2009, Judge Claudia Wilken granted the motion to appoint lead plaintiff and lead counsel. On June 15, 2009, the plaintiffs filed an Amended Complaint. The defendants responded by filing a motion to dismiss on August 13, 2009. The motion is currently pending before the Court.
On January 13, 2010, an order by the Court granted the defendants motion to dismiss with leave for the plaintiffs to serve and file their second amended complaint.
On February 03, 2010, a second amended complaint for violation of securities laws was filed by the lead plaintiffs against the defendants.
On August 27, 2010, the Court granted the Defendants’ motion to dismiss Plaintiffs’ Complaint with prejudice because Plaintiffs had a previous opportunity to amend their complaint and the Court concludes that further amendment would be futile.
On August 31, 2010, a clerk’s judgment was issued ordering the case closed .