Novell Inc’s restructuring may be effecting a slow financial recovery but the hangover lingers in the form of a class action suit filed last week in the US District Court in Northern California. The suit, which names the company, its officers and outside auditor Ernst & Young LLP as defendants, alleges that Novell concealed the true nature and extent of the company’s problems and misrepresented the success and state of demand for Novell’s products and its prospects for revenue and EPS growth during fiscal 1997. The complaint also alleges that the defendants manipulated and inflated Novell’s reported earnings per share for the fourth quarter of 1996 and the first quarter 1997, making the company appear profitable when it had actually suffered losses. Novell recently reported its second consecutive quarter of slim profits (CI No 3,355) after the massive layoffs and channel clean-up initiated by chief executive Eric Schmidt after taking over last year.
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