Ex-Loral CEO Wins Shareholder Suit Over Bankruptcy

Ex-Loral CEO Wins Shareholder Suit Over Bankruptcy - 2/25/2009

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Ex-Loral CEO Wins Shareholder Suit Over Bankruptcy
Ex-Loral CEO Wins Shareholder Suit Over Bankruptcy

Securities Law 360. February 25, 2009
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EXCERPT: A federal judge has awarded summary judgment to the former CEO of Loral Space & Communications Ltd. in a suit filed against him by a class of the company's shareholders, ruling that financially troubled companies are not obligated to disclose contingency bankruptcy preparations. On Wednesday, Judge Victor Marrero of the U.S. District Court for the Southern District of New York ruled in favor of ex-CEO Bernard L. Schwartz on the cross-motions for summary judgment. The lead plaintiffs representing a class of investors who purchased Loral stock between June 30, 2003, and July 15, 2003, accused Schwartz of illegally misrepresenting or failing to disclose Loral's potential plans to enter bankruptcy. The company filed a prepackaged bankruptcy in July 2003, with Intelsat Satellite agreeing to pay $1.06 billion for Loral, which the shareholders claimed led the company's stock to drop from just above $3 to 30 cents. The plaintiffs argued that Schwartz made a number of statements during the class period that misled investors to think the company would remain financially viable, without disclosing the ongoing negotiations with Intelsat that hinged on a Chapter 11 filing. Judge Marrerro rejected those claims based on Schwartz's "extensive" evidence that Loral had "put the market on notice of its dire financial circumstances" throughout the class period. As such, a bankruptcy filing was within the realm possibility that the market could have anticipated, according to the opinion. In particular, the judge pointed to the fact that even before the bankruptcy filing, the average closing price of Loral's stock was at or around its all-time low. Judge Marrero also cited a 2007 decision in the same court. In that case — In re: Tower Auto. Secs. Litigation — the court ruled that a company's failure to disclose its bankruptcy planning did not mean that the other, more positive disclosures were then misleading. … The case is part of In re: Loral Space and Communications Shareholders' Securities Litigation, case number 03-8262, in the U.S. District Court for the Southern District of New York.

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