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False and Misleading Financial Statements
Shareholder Gail Fialkov filed a class action lawsuit against CEO Steve Ballmer and other top Microsoft executives and the corporation itself earlier this week. The Plaintiffs, acting on the behalf of a group of Shareholders, claim that Microsoft issued “materially false and misleading financial statements” which concealed the amount of money they were losing on the unpopular Surface RT Tablets. If these claims are true, then Microsoft’s executives violated several Federal Securities Laws.
The Curse of Surface RT
The Surface RT is a source of continual embarrassment for Microsoft. Released to poor reviews both from critics and customers, Microsoft slashed its price by $150 earlier this year. Many suspected that this price cut was an attempt to liquidate overstock. When the company later announced that it had over $900 million worth of unsold Surface RT Tablets in storage, these suspicions were confirmed.
The Surface RT’s failure, while not the sole focus of the lawsuit, is constantly mentioned in the complaint. The suit itself, while meticulously listing the specific claims against Microsoft, also criticizes the business sense of Ballmer and the other executives. From the text: “Defendants knew or recklessly ignored that the market value of Microsoft’s Surface RT inventory had declined precipitously and that the Company, pursuant to applicable accounting rules, was required to write down the value of its Surface RT inventory during the quarter ended March 31, 2013.”
Not Every Shareholder Included
The Plaintiffs in the suit do not encompass all of Microsoft’s shareholders, only those who purchased stock between April 18 and July 18 of this year. These investors, the suit alleges, purchased Microsoft shares under the false impressions management reported during the previous quarter.
Microsoft Corporation is listed as a defendant, but the suit also singles out CEO Steve Ballmer, former CFO Peter Klein, Chief Accounting Officer Frank Brod, and Executive Vice President Tami Reller. The complaint itself (which you can read here) calls for a trial by jury and demands “compensatory damages.” It is also peppered with quotes from Microsoft executives meant to give legal justification for such a trial.