3Com Corp has been hit with a shareholder class action lawsuit, alleging that company officials manipulated 3Com stock to an all- time high, and then sold their respective shares prior to the company’s February share price nose dive (CI No 3,097). According to the law firm of Milberg, Weiss, Bershad, Hynes & Lerach LLP, ten unnamed defendants reaped $59.3m in illegal insider trading proceeds. The shareholder class action suit was filed on March 24 in California’s Superior Court for Santa Clara County. The plaintiffs claim 3Com reported its first and second quarter revenue and earnings per share in excess of industry expectations. At the same time 3Com also increased its gross margin operating model to approximately 54%, and projected strong performance for several future quarters, saying that there was high demand for its product lines. The plaintiff also says that 3Com stock enjoyed a 52% increase in two-and-a-half months. As the stock approached $78 per share, the defendants allegedly sold off 896,000 shares. On February 10, 3Com announced that its upcoming third quarter report would fail to meet industry expectations, because of reduced sales in December and January, and the ongoing price war that had begun between 3Com and Intel Corp, within 3Com’s key network interface card market. Following the announcement, 3Com stock plummeted to $37 per share in a single day; since then it has fluctuated but has failed to reach its early December price. The plaintiffs now seek to recover unspecified damages on behalf of the purchasers of 3Com common stock. 3Com said that the allegations of the lawsuit are without merit and that it intends to defend the lawsuit vigorously.
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