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Semiconductor industry

Wave Systems Corporation Faces Class Action Lawsuit Over Misleading Financial Statements

Strategic Insights

— 2 min read

A class action lawsuit was filed on behalf of all purchasers of the common stock of Wave Systems Corporation ("Wave Systems" or the "Company") from July 31, 2003, through December 18, 2003, inclusive. The complaint charges Wave Systems, Steven Sprague, and Gerard T. Feeney with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The lawsuit alleges that the defendants issued a series of material misrepresentations to the market concerning the Company's business agreements with Intel Corporation and IBM. These misrepresentations included the failure to disclose and/or misrepresent the following facts: Intel would not be entering into a revenue-producing licensing agreement with the Company, the Intel contract did not require Intel to purchase any software, and IBM was not embedding Wave Systems' software into IBM computers.

Key Takeaways:

  • The class action lawsuit was filed in the United States District Court for the District of Massachusetts on behalf of all purchasers of Wave Systems Corporation's common stock from July 31, 2003, through December 18, 2003.
  • The defendants allegedly made material misrepresentations to the market concerning the Company's business agreements with Intel Corporation and IBM.
  • The misrepresentations included the failure to disclose and/or misrepresent the following facts:

+ Intel would not be entering into a revenue-producing licensing agreement with the Company.

+ The Intel contract did not require Intel to purchase any software.

+ IBM was not embedding Wave Systems' software into IBM computers.

+ The IBM transaction would provide no direct revenue to the Company.

  • On December 18, 2003, Wave Systems reported that the SEC had commenced a formal investigation into certain matters relating to Wave Systems.
  • The investigation related to certain public statements made by Wave Systems during and around August 2003, as well as certain trading in Wave Systems' securities during such time.
  • News of the investigation shocked the financial market, causing Wave Systems' shares to fall 17.13% on extremely high volume on December 19, 2003.

Statistics:

  • The lawsuit was filed in the United States District Court for the District of Massachusetts.
  • The period of the alleged misrepresentations was from July 31, 2003, through December 18, 2003.
  • Wave Systems' shares fell 17.13% to close at $1.50 per share on December 19, 2003.

Sources:

  • Press Release, Schiffrin & Barroway, LLP, Notice of Class Action Lawsuit Filed on Behalf of Purchasers of Wave Systems Corporation Common Stock (February 11, 2004).
  • http://www.sbclasslaw.com/ (Schiffrin & Barroway, LLP).

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