US networking equipment company 3Com Corp has been hit with a class action suit alleging misrepresentations of its stock performance and insider trading. The company and ten senior employees have been accused of misleading shareholders when it attributed strong first and second quarters for 1997 to a high demand for its fast Ethernet cards, stackable hubs and switches, and relative price stability. As a result the company’s stock rose to just over $81 per share in December 1996 from $52 in September. The ten employees named as defendants in the suit then sold off 896,000 shares at prices as high as $78 per share, bringing in $59.3m in proceeds. A Northern District of California court this week heard that stock began to drop in early February last year as rumors mounted that severe price cuts would be applied to 3Com’s Fast Ethernet Cards, and that the company was in fact performing much worse than publicly disclosed (CI No 3,097). Shares dropped to an all time company low of $37 at news of the prices cuts (CI No 3,103). Plaintiffs who brought the suit to court are looking to recover damages on behalf of all the purchasers of 3Com stock in the six month period in question.
