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| 2002 News and Press Releases |
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HEADLINE ARCHIVED:
Fraud (Dismissal): In re Network Commerce Sec. Litig. - Seattle Judge Tosses Shareholder Class Action Against Network Commerce
By: Staff Writer
Securities Litigation & Regulation Reporter. October 9, 2002
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EXCERPT: A federal court in Seattle has dismissed the securities fraud class action against Network Commerce Inc. after concluding that the amended complaint failed to meet the heightened pleading standards of the Private Securities Litigation Reform Act. The court also concluded that the allegations regarding misleading offering materials had not been pleaded with the required particularity. In re Network Commerce Inc. Securities Litigation, No. 01-675, order issued (W.D. Wash., Sept. 24, 2002). The original complaint was filed against Network and chairman/CEO Dwayne Walker. The shareholders said the defendants misrepresented Network's financial condition so they could attract additional funding and allow Walker to enrich himself by exercising options with loans from the company. Walker allegedly took a total of $4.5 million in loans during 1999 and 2000. He used the money to exercise his stock options and ultimately reaped $2.4 million from his stock sales…The shareholders also claimed that the company acquired Uberworks, an e-commerce-enabling company, in August 2000 despite due diligence reports that recommended against the transaction. They also said Network failed to disclose problems with its acquisition of Ubarter, an online forum allowing businesses to trade products. By early 2001 the company had revised its revenue projections downward and announced it was laying off 145 people. It was also forced to write off costs associated with the Ubarter transaction. As a result of this news, the stock price fell from $1.31 per share to 75 cents per share before trading was halted. The class period high was $23.44 per share. In their complaint, the shareholders alleged violations of the anti-fraud provisions of federal securities laws, as well as violations of Sections 11 and 12 of the Securities Act governing registrations and prospectuses. U.S. District Judge Robert Lasnik said the shareholders had failed to show why numerous statements by the company were misleading, citing In re Silicon Graphics Securities Litigation, 183 F.3d 970 (9th Cir., 1991). …In his analysis, Judge Lasnik acknowledged that the stringent pleading requirements of the PSLRA do not apply to claims based on the Securities Act of 1933 and that the sections governing offering materials do not require the pleading of fraudulent intent. However, citing In re Stac Electronics Securities Litigation , 89 F.3d 1399 (9th Cir., 1996), the judge said the Ninth Circuit had clarified that the requirement to plead fraud with particularity under Federal Rule of Civil Procedure 9(b) does apply to Securities Act claims if they are grounded in fraud. Judge Lasnik said the allegations were based in fraud and had not been pleaded with the required specificity. He dismissed the complaint with prejudice, noting that it had been amended on several occasions and leave to amend was not warranted under the circumstances.
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