Marvin Pearlstein, a BlackBerry shareholder, is bringing suit against the beleaguered smartphone maker for allegedly misleading investors about the company's future prospects. But if history is any indicator, the charges won't stick.
Pearlstein filed his proposed class-action suit against BlackBerry in Manhattan federal court, claiming that BlackBerry CEO Thorsten Heins and CFO Brian Bidulka gave stockholders in the company a distorted picture of both the company's financial prospects and the expected sales for the BlackBerry 10 smartphone.
The suit specifically cites statements made in BlackBerry's Sept. 27, 2012, press release, in which it outlined its second-quarter results for the 2012 fiscal year. In it, Heins claimed "[O]ur second quarter results demonstrate that RIM is progressing on its financial and operational commitments during this major transition ... . Make no mistake about it, we understand that we have much more work to do, but we are making the organizational changes to drive improvements across the company."
In his suit, Pearlstein states the reality that emerged during the following year was sharply at odds with BlackBerry's projections. "The BlackBerry 10 was not well received by the market," Pearlstein stated in his complaint, "and the company was forced to write down a nearly $1 billion charge related to unsold BlackBerry 10 devices and lay off approximately 4,500 employees, totaling approximately 40 percent of its total workforce."
BlackBerry is currently in the process of being sold to Canada's Fairfax Financial Holdings, which already owned approximately 10 percent of BlackBerry's stock before the sale. Fairfax plans to acquire the rest for $9 per share and take the company private. The company is also planning to leave the smartphone market entirely and possibly capitalize on its messaging services, which it is preparing to offer on multiple non-BlackBerry platforms.
The lawsuit may complicate the sale, since as the Bloomberg article notes, it "seeks to include as plaintiffs shareholders who suffered unspecified damages after buying BlackBerry common stock from Sept. 27, 2012, until Sept. 20 ."
But BlackBerry has been sued before over statements it made to investors and emerged unscathed from that particular malestrom. What's more, the circumstances of the previous suit are close enough that the new one may well be tossed for the same reasons.
A similar class-action lawsuit was brought against BlackBerry (then still called Research in Motion) in 2011, by investor Robert Shemian. That suit also alleged BlackBerry had mislead investors about the prospects for its yet-to-be-released BlackBerry PlayBook and the still-under-wraps BlackBerry 10 phone. The claimants in the suit even managed to round up 11 "low-level confidential informants" to support their case.
However, in March 2013 U.S. District Judge Richard Sullivan dismissed the charges, stating, "Corporate failings alone do not give rise to a securities fraud claim." Mismanagement was not the same as malfeasance, he added.
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