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May 9, 2008 |
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ARISTOCRAT LEISURE: Poised to Settle AUD396MM Shareholders' Suit Australian gaming machine maker Aristocrat Leisure Ltd said that it has yet to settle a AUD396-million class action suit filed by shareholders, Reuters reports. Reuters cites The Australian Financial Review as having reported earlier that Aristocrat was poised to settle the lawsuit alleging that the company did not accurately update the market on its earnings outlook. Aristocrat said it did not expect any settlement to affect its financial strength, Reuters notes. Case Background The Class Action Reporter reported on Nov. 1, 2007, that the shareholder class action finished on Oct. 31 last year with the company conceding if any compensation is owed, it could peak at $1.10 a share, more than three times the figure it used when the case opened on Oct. 4, 2007. The CAR report recounted that the suit was filed in 2003 by Maurice Blackburn Cashman Lawyers and litigation company IMF Australia, alleging that the company's market forecasts were false and misleading and that it failed to disclose all material information in a timely manner. The case was transferred to the Federal Court in Sydney. The lawsuit further alleged that the company misled shareholders by not keeping them fully informed before announcing earnings downgrades that wiped $1.5 billion (AUD2 billion) from the company's value in 2003. The lawsuit claims the non-disclosure caused them losses. The Statement of Claim has been amended to claim losses incurred by shareholders who purchased shares between Feb. 18, 2002 (previously Sept. 20, 2002) and May 26, 2003. The case is before Justice Margaret Stone. Dorajay Pty Limited is representing shareholders. Aristocrat said only Dorajay and four other shareholders had filed details of their claims. Proceedings began on Oct. 4, 2007, which proceedings were dominated by procedural issues. Maurice Blackburn submitted a supplementary two-page letter by forensic accountant Greg Meredith. Three expert reports by Mr. Meredith, who is partner and head of forensic accounting at Ferrier Hodgson, were tendered as evidence on behalf of Dorajay. All four reports were uncontested by Aristocrat. Later on, Brad Cornell, from the California Institute of Technology, testified for Aristocrat. The New York econometrician Fred Dunbar testified for the shareholders. Mr. Cornell said that only part of a 57% fall in Aristocrat's share price in February 2003 could be attributed to previously undisclosed bad news. Mr. Dunbar, on the other hand, argued that almost all the share price fall could be attributed to the effect on earnings of the new information, according to the report. Mr. Dunbar said the share price would have fallen by the same 57%, albeit in stages, if Aristocrat had announced lower -- correct -- profits in February and August 2002 and if it had righted an inflated profit forecast in December 2002. Mr. Cornell countered that the delay contributed to the size of the fall. Aristocrat said the lawsuit could cost the company AUD10 million to AUD20 million in damages -- not the AUD190 million to AUD396 million previously reported by the media. Aristocrat changed its loss figure to take account of opinions expressed during the case by expert witness, Mr. Cornell. It now suggests a range between 35c and $1.10 a share. Both sides agree the Aristocrat share price was inflated above its true value because Aristocrat overstated its profits from South American contracts in February and August 2002, and should have warned the market from December 2002 that the next result would be below analysts' forecasts. Justice Stone is expected to hand down her decision early next year. The ruling could set a precedent for other class actions over failure to disclose material information. Representing shareholders is: Stephen Gageler, S.C. Phone: + 612 9233 1209 Fax: + 612 9232 7626 e-mail: stephengageler@wentworthchambers.com.au |
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