Oracle and its high profile CEO Larry Ellison are being sued in a
Californian District Court by shareholders, alleging that the
second largest software company in the world exaggerated its sales
expectations and the value of a software application.
The San Diego-based law firm Milberg Weiss announced on Friday
that a class action has been commenced on behalf of a pension fund
that paid around $1.5 million for 50,000 shares in the company at a
time when its shares were around twice their present value. Other
shareholders are being invited to join the action against the
company and its CEO.
The complaint charges Oracle and Ellison with violations of the
US Securities Exchange Act of 1934. Oracle supplies software for
enterprise information management. The complaint alleges that the
company and its CEO said that Oracle would have sequential earnings
per share growth of 9%, or $0.12, and revenue of over $2.9 billion
for its third quarter 2001. They are also alleged to have assured
investors that Oracle's new 11i Suite software required no
programming systems integration to implement the product and that
using the product internally saved the company $1 billion.
However, the lawsuit says that Ellison actually knew that the
Suite was fraught with massive technical problems, and required
expensive systems integration work to implement. It also claims
that “Ellison also knew that Oracle's so-called billion dollar
savings was not the result of the synergies created by Oracle's 11i
product, but rather, his decision to terminate more than 2,000
employees, many of whom would ‘support’ Oracle's new software.”
Throughout January and February 2001, the company and Ellison
repeatedly stated that there were no problems. However, during this
period Ellison sold nearly $900 million worth of his own Oracle
shares at prices as high as $32 per share, or 50% higher than the
price to which Oracle shares dropped as Oracle's "true prospects"
began to reach the market.
On 1st March, Oracle revealed that, contrary to prior
assurances, it would post a major revenue shortfall and earnings
per share decline, sending Oracle's shares into a free fall. This
disclosure shocked the market, causing Oracle's stock to decline to
less than $17 per share on 2nd March, 2001.
