STRATEGIC PARTNERS
September 9, 2002
MEMPHIS, Tenn. -- A Concord EFS stockholder on Sept. 6 filed a federal lawsuit alleging that seven top executives of the transaction processor illegally earned $160 million by selling their company stock at inflated prices before its value fell.
According to a report in the Memphis Commercial-Appeal, stockholder Matt L. Brody isn't seeking a specific amount in damages, but is seeking class-action status for his civil suit. If a judge grants such status, other stockholders could join the suit.
The 32-year-old company has grown rapidly in the last 15 years. The accelerated growth and company statements about future growth are the focus of the lawsuit, which alleges securities fraud and insider trading in company stock.
When Concord's stock price began dropping from a summer 2001 price of around $30 per share, immediately before and after the Sept. 11 terrorist attacks, the lawsuit claims Concord executives began making false and misleading statements about the company's continued growth to keep the stock price up.
Higher stock prices would make more acquisitions of other companies easier. "Without acquisitions, Concord's promised growth . . . would be impossible," the lawsuit reads. "Defendants also wanted to sell their shares before the flaws in the Concord model became apparent."
In the past two years, Concord has acquired the Cash Station and Star Systems networks, as well as transaction processors The Logix Cos. and Core Data Resources.
When Concord stock prices dropped to $6.77 a share in early August, company officials denied rumors that the company was under investigation by the Securities and Exchange Commission. (See related story Concord denies SEC probe as stock plunges)
Concord EFS stock lost a quarter of its value on Sept. 5 in reaction to the cut in the profit forecast. It closed at $14.49 a share on Sept. 6, up 19 cents from the day before. (See related story Concord lowers earnings estimates, names Labry as Palmer's successor)
Concord chairman and chief executive officer Dan Palmer, a defendant in the lawsuit, also said on Sept. 5 that he would hand over CEO duties next year to company president Edward Labry, also a defendant.
Palmer, Labry and Richard P. Kiphart, a director, each made $44 million to $49 million from sales of their shares in the company, according to the lawsuit.
The lawsuit claims Sept. 5's announcement was part of the scheme.
"When it became impossible for defendants to continue their scheme, they attempted to effect a 'soft landing' by attempting to slowly disclose the truth about Concord's operations in order to avoid a complete collapse in Concord's stock price," the lawsuit reads.
"That's a relatively common claim to be made following a lower guidance on earnings," Miles Kilburn, president of the risk management services division and another executive named in the suit, told the Commercial-Appeal. "It's unfortunate, but not a complete shock that it was filed."
"These types of lawsuits are typical of what often happens to public companies that experience a significant decline in share price, especially in today's business climate. This lawsuit appears to be the direct result of the price decline in Concord's shares following our release of earnings guidance for 2002 and 2003," said Palmer in a Concord news release.
"We believe the claims in the suit are without merit and we intend to vigorously defend against the litigation. Most importantly, we will remain focused on executing our business plan, and we will continue to conduct our business in the best interests of our shareholders as we have since we became a public company in 1984."
