The San Diego-based law firm Milberg Weiss announced on Friday that a class action has been commenced on behalf of a pension fund that paid around $1.5 million for 50,000 shares in the company at a time when its shares were around twice their present value. Other shareholders are being invited to join the action against the company and its CEO.
The complaint charges Oracle and Ellison with violations of the US Securities Exchange Act of 1934. Oracle supplies software for enterprise information management. The complaint alleges that the company and its CEO said that Oracle would have sequential earnings per share growth of 9%, or $0.12, and revenue of over $2.9 billion for its third quarter 2001. They are also alleged to have assured investors that Oracle's new 11i Suite software required no programming systems integration to implement the product and that using the product internally saved the company $1 billion.
However, the lawsuit says that Ellison actually knew that the Suite was fraught with massive technical problems, and required expensive systems integration work to implement. It also claims that “Ellison also knew that Oracle's so-called billion dollar savings was not the result of the synergies created by Oracle's 11i product, but rather, his decision to terminate more than 2,000 employees, many of whom would ‘support’ Oracle's new software.”
Throughout January and February 2001, the company and Ellison repeatedly stated that there were no problems. However, during this period Ellison sold nearly $900 million worth of his own Oracle shares at prices as high as $32 per share, or 50% higher than the price to which Oracle shares dropped as Oracle's "true prospects" began to reach the market.
On 1st March, Oracle revealed that, contrary to prior assurances, it would post a major revenue shortfall and earnings per share decline, sending Oracle's shares into a free fall. This disclosure shocked the market, causing Oracle's stock to decline to less than $17 per share on 2nd March, 2001.