Once high flying multimedia firm Macromedia Inc has had a class action suit brought against it on behalf of its shareholders, accusing it not only of misrepresenting financial statements, but also of fraud and insider trading. The action alleges that prior to April 1996, Macromedia had reported enormous revenue and profit growth, with very high profit margins. For the year to March 31 1996, the company turned in profits up to $23m up from $6.5m the previous year, on revenue up 108% at $117m (CI No 2,907). Based on this performance, its stock was trading at a very high multiple of reported earnings, leaving it somewhat vulnerable and sensitive to fluctuations in growth and performance. By April, the beginning of the ‘class period’, growth had actually stalled completely. The complaint says directors acted fraudulently to prevent share prices crashing, over-blowing the success of the company’s main products, its prospects and its financial status. This sent the shares to a high of $46.50, enabling Macromedia to complete an acquisition for 600,000 of its shares, which otherwise would not have had sufficient value. At the same time, directors and senior officers sold 257,000 shares at this alleged inflated price, bagging themselves a cool $9m in the process. To top it off, they allegedly understated expenses, and fraudulently claimed large bonuses, that otherwise should not have been payable. On discovery of the scheme on January 10 this year, shares in the company plunged to $9.17. The action comes at a time when our sister publication Client Server News hears Microsoft Corp may have been sniffing around with a view to buy the company at a bargain basement price. Analysts reckon this would be consistent with the Redmond giant’s recent acquisitions, and would give Microsoft the company’s Shockwave Web content video compression technology and Flash, its animation tool, as well as its leading edge HTML technology which Microsoft is incorporating into Internet Explorer.
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