StorMedia hit by investor suit

Shareholders of StorMedia launch a class-action lawsuit against the thin-film disk maker.

CNET News staff
Shareholders of StorMedia (STMD) today launched a class-action lawsuit against the thin-film disk maker.

The suit, filed in California's Santa Clara County Superior Court, alleges company officers and directors artificially inflated the price of the stock by reporting strong demand for company products and a large multiyear contract with Maxtor.

The plaintiff said that the company stated these two events would push revenue and earnings gains in 1996 and 1997.

StorMedia, meanwhile, attempted to launch a secondary offering in May and June of this year. But in June, rumors began to circulate regarding weak demand for StorMedia's products, and its share price declined during this two-month period from a high of around 30 to 9-3/4 a share.

The company denied the rumors and scrapped the offering, citing market conditions, the suit alleges.

Shortly after, however, the company said softening demand for its product would drag second- and third-quarter earnings down and that its contract with Maxtor had been canceled due to delivery shipment problems, the lawsuit states.

Shareholders allege five of the company's executives inflated the stock price in order to sell a portion of their stock options on the open market. Two insiders sold 100 percent of their holdings and three others sold off 63 to 79 percent of their stakes in the company.

Neither company officials nor their attorneys returned phone calls.

The class-action lawsuit, filed by investor Sara Werczberger, applies to investors purchasing shares between November 27, 1995, and August 6 of this year.