Maytag faces lawsuit that alleges investor deception

Maytag faces lawsuit that alleges investor deception
 
Date July 06, 2005
Section(s) Local News
Brief  
 
DES MOINES (AP)– A New York investment adviser and trustee for trust fund clients has filed a lawsuit that accuses Maytag and two top executives of deceiving the public about the company’s business outlook this spring.

The lawsuit filed Tuesday in U.S. District Court on behalf of Barry Yellen alleges that the deception in March prompted thousands of people to buy the company’s stock at artificially inflated prices that later plummeted.

The lawsuit goes on to allege that Newton-based Maytag chairman and CEO Ralph Hake and executive vice president and CFO George Moore were trying to push up the purchase price of the company. Maytag disclosed that it was for sale in May, after the stock price had dropped.

Attorneys for Yellen are seeking class-action status on behalf of all buyers of Maytag stock between March 7 and April 21.

The amount of alleged damages to all stock buyers could run into the tens of millions dollars, although it hasn’t yet been calculated, said Ralph Stone, a New York lawyer representing Yellen. George LaMarca of the Des Moines law firm LaMarca & Landry is also representing Yellen.

The lawsuit accuses the defendants of violating sections of the U.S. Securities Exchange Act and seeks unspecified compensatory damages and other relief.

Karen Lynn, a Maytag spokeswoman, said the company hadn’t received a copy of the lawsuit and couldn’t comment.

Comments by Hake and Moore on March 7 at the Raymond James Institutional Investors Conference in Orlando, Fla., are a focus of the lawsuit. The executives predicted a better business outlook for Maytag in 2005. The company reaffirmed that it expected to earn between $1.10 and $1.30 per share in 2005.

The lawsuit alleges that the defendants knew in February that internal forecasts had been reduced to less than $1 a share, and that the company had “missed its 2005 business plan forecast for January by an enormous 78 percent.”

According to a Maytag proxy statement, which was prepared for a potential deal with an investment group led by Ripplewood Holdings of New York, Maytag board and management discussed earnings forecasts of 97 cents to $1.77 on Feb. 10.

Maytag overstated projections to inflate its stock price and attract buyers get a higher offer from Ripplewood, the lawsuit alleges.

The March 7 remarks were “knowingly or recklessly false and misleading,” because the defendants were aware of “numerous factors that were negatively impacting the company,” the lawsuit alleges.

After the news release was issued, Maytag shares rose, closing at $15.93, up from $14.70 the previous business day.

The lawsuit said that on April 22 the company publicly changed its business forecast, announcing first-quarter financial results and lowering its 2005 earnings forecast to a range of 45 to 55 cents a share.

Shares closed that day at $10.89, down from $15.10 the previous day.

Stone, the New York lawyer representing Yellen, said investors who sold their stock after the price dropped could be eligible for damages. Some who kept their shares might also be eligible under federal law, he said.

According to a statement, Yellen purchased 20,000 Maytag shares during the March-April period on behalf of various clients, paying between $15.51 and $15.68 per share. His clients include pension funds, retirement accounts and individual accounts.

Hake and Moore own substantial blocks of Maytag shares, the lawsuit says.

Maytag has had a “very poor track record of giving appropriate earnings guidance” at various times, said Laura Champine, a securities analyst with Morgan Keegan & Co. in Memphis, Tenn. However, she added that she thought Hake and Moore “said what they said in good faith” at the Orlando conference in March.

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