Suit claims quarter's profit inflated
10/6/2005A New York City man has sued Toledo's largest company in federal court, contending that Dana Corp. inflated its profits and then revised its earnings outlook, causing its stock price to fall sharply, hurting investors.
The lawsuit, filed yesterday in U.S. District Court in Toledo, seeks class-action status and unspecified compensation for the loss in share price from March to September. The case filed by John Johnson is assigned to Judge James Carr.
About 240 such cases were filed last year.
"Almost every company that restates its earnings gets sued," said Nell Minow, principal of the Corporate Library, a governance firm in Maine. "That doesn't mean it gets sued successfully."
The plaintiff against Dana alleges the firm inflated its profits through improper accounting. The suit contends the automotive parts company knew its financial performance was being hurt by an increase in the price of raw materials, particularly steel, and yet didn't publicly acknowledge until Sept. 15 how bad that performance would be until Sept. 15.
That day, the share price plunged about $3 to $9.86. Yesterday's closing price was $9.08 a share.
The lawsuit seeks to cover shareholders who bought stock from March 23, when the firm said it would revise its 2005 earnings outlook downward because of increased raw material costs, component shortages, and other problems, and Sept. 14, the day before it announced it likely would have to restate its second-quarter performance.
The March advice from the company was unreasonable, the suit contends.
Although Mr. Johnson is the plaintiff, the New York law firm that filed the case hopes to find someone with larger monetary losses to be lead plaintiff. The firm, well known for filing shareholder litigation, is Milberg Weiss Bershad & Schulman LLP.
Named as defendants are Dana, Chief Executive And Chairman Michael Burns, and Chief Financial Officer Robert Richter. The two officers are named because they certified to the U.S. Securities and Exchange Commission that the company's second-quarter earnings were true and accurate. The suit contends those statements were "patently false."
A spokesman said Dana officials have no comment on the litigation. Dana said in a Sept. 15 news release that it likely would restate second quarter results and had lowered its 2005 profit outlook to 60 to 70 cents a share from $1.30 to $1.45.
"A main reason given for the halving of the 2005 guidance was high steel costs, a factor that defendants repeatedly assured the market was already considered, and accounted for, in the guidance," the lawsuit states.
Contact Mary-Beth McLaughlin at
mmclaughlin@theblade.com
or 419-724-6199.