One of the shareholder actions in the US against CBT, the educational software company whose shares are quoted on the US Nasdaq, has been dismissed. This followed a recent unprecedented court decision which will make it very difficult for shareholders' actions against companies, and directors, accused of false and misleading statements, recklessness or mismanagement.
A spokesman for CBT said the company was aware of the dismissed action. He said it underlined CBT's stated position that it regarded the actions as frivolous and spurious. The precedent-forming decision, in the 9th US Circuit Court of Appeal in San Francisco, ruled that shareholder actions based on alleged fraud should be dismissed unless they show "in the greatest detail possible what company officers knew when they made statements at the core of the claim". That decision, based on a Silicon Graphics (SC) case, led to lawyers to hold off dismissal of their actions, until the federal appeals court decision, and number of cases in northern California and San Diego, have been put on hold. The shareholder action against CBT was dismissed by a San Jose judge. This, however, is left open if the appeals court reconsiders the SGI case.
CBT has a number of class actions pending. One suit alleged that certain of its officers, and director, had made misrepresentations about its business, earnings growth and financial statement. It also alleged that false and misleading statements inflated CBT's share price to a high of €63 7/8 in July 1998 from $44 3/8 in January, before the facts emerged, and the stock collapsed to a low of $9 5/8.
That class action was placed before the US District Court for the Northern District of California on behalf of people who accumulated stock between January 20th, 1998 and September 30th, 1998.
Last October CBT replaced its two most senior executives in an effort to regain the confidence of investors. Following the replacements, Mr Bill McCabe who retook the helm, said "recent events at CBT Group have created a crisis of confidence in the company".
Events moved fast on his return. Although the shares dipped to just over $6, they have moved up strong since and are now trading at $23 5/8, having touched €30 this year. He also backed his private company, Knowledge Well, into the group.
The SCI ruling means that many shareholder class actions have been put on hold pending decision by a federal appeal court. Mr Bruce Vanyo, SG's lawyer, said the ruling requires investors to show that they have had a "real factual basis for their claim of fraud, as opposed to bad news and a stock drop".
CBT has been rebuilding its business. Its latest results showed a loss of $366,000 in the three months ended June 30th, 1999, compared with a profit of $4.1 million in the same period in 1998. However, the underlying trend was much better.
The loss was incurred because of once-off acquisition charges and depreciation of intangibles, in connection with the take-over of Knowledge Well. Excluding these CBT recorded a net profit of $5.7 million. The results were described as noteworthy by group president and chief executive officer, Mr Gregory Priest, because "they represent the strongest revenues yet achieved in any quarter in the company's history".
