A class-action lawsuit charges that software maker Informix and its accounting firm hid bad news about the company's performance from shareholders until after senior executives had made millions off the sale of hundreds of thousands of Informix shares.
The lawsuit, seeking unspecified damages and compensation, was filed Wednesday in US District Court for Northern California by the law firm of Gold Bennett & Cera on behalf of a single named plaintiff, Timothy Britton, and all other shareholders who purchased stock in the company between 16 July and 7 August.
During this period, the suit charges, senior Informix executives and its independent auditor, Ernst & Young, conspired to inflate the company's stock prior to the execs selling off some 640,000 shares for US$14 million in combined profits. It says the defendants did not reveal negative aspects of Informix's business prospects in their public statements, and "falsely stated the company's results from operations."
Representatives from Informix and Ernst & Young declined to comment on the suit.
Last week, Informix blamed accounting errors for a quarterly net loss of $120.5 million, and said it would trim its 4,200-person work force by 10 to 15 percent. Although the company posted profit of $21.6 million in the previous quarter, it now says it will review these results in light of its questionable accounting practices, and may lower its reported 1996 revenue of almost $940 million by as much as $100 million.
At the center of these accounting snafus is Informix having recognized revenue from resellers before its products had arrived in the hands of customers, and bartering its software for services from some clients. A big chunk of the company's second-quarter loss also stemmed from a $62 million restructuring charge related to an earlier trimming of some 440 workers.
Informix plans to take an additional, unspecified charge in the current quarter. CEO Bob Finocchio, who was named to the top spot two weeks ago when chairman Phil White announced his resignation, said Informix is now applying its revenue-recognition practices "very conservatively," and added that the company is "taking steps to position Informix with a solid foundation for the future."
The lawsuit charges that Informix's accounting practices caused the company's stock to appear healthy, but that when investors first learned of the problems, the share price took a tumble. Informix's stock was largely unchanged in afternoon trading Thursday.
The company received some much-needed help Wednesday when New York investment firm Fletcher International agreed to purchase 160,000 Informix shares for $40 million. Informix said it would use the extra cash to help it get "back on track towards profitability."
