Comcast’s December Stock Drop Prompts ‘Cookie Cutter’ Litigation
Securities plaintiffs’ litigators are gunning for Comcast executives after the company’s share price dropped more than 12 percent on Dec. 5 when the company reduced its growth forecasts and increased spending estimates (CD Dec 6 p13). Comcast’s uncharacteristic warning to investors at a UBS conference came after the company reported on Oct. 25 disappointing results for the third quarter that pushed the stock down 11 percent that day. Those drops in stock price came after months of rosy predictions from Comcast executives, a lawsuit alleged. It alleged they failed to disclose that increased competition from satellite and telco pay-TV providers forced the company to spend more money to attract and keep customers and that the cost of upgrading its network and equipment was exceeding internal expectations.
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Plaintiff Marilyn Clark, who holds 30 shares of Comcast stock, alleged that company executives misled investors about the prospects for future growth and spending in order to artificially inflate Comcast shares, court filings show. She also alleged that executives made false statements about the company to allow CEO Brian Roberts and Chief Operating Officer Stephen Burke to sell a combined $15 million of their shares at inflated prices. The suit seeks class action status.
Clark’s attorneys, Coughlin Stoia, probably are looking for a larger shareholder to step forward as the lead plaintiff for the litigation, said Adam Pritchard, a former Securities and Exchange Commission attorney. He teaches securities law at the University of Michigan and specializes in securities fraud class actions. Brower Piven, another firm specializing in securities litigation, issued a press release Wednesday aimed at Comcast investors that experienced a net loss between Feb. 1, 2007, and Dec. 4, 2007. Neither firm responded to messages seeking comment. “The suits have no merit and we will defend ourselves vigorously,” a Comcast spokesperson said.
Such shareholder litigation as Clark’s complaint against Comcast typically do not attract institutional investors with large stakes in the defendant companies because the suits don’t have a good chance of moving forward, said Pritchard, who hadn’t read the complaint. “This is a pretty cookie- cutter sort of complaint that you could file against any company that had a stock price decline,” he said. “It’s not as if they had to restate their numbers, or there is an SEC investigation or their CFO has been fired. Those are the ones that are more likely to proceed.”
Comcast’s next step will be to file a motion to dismiss the lawsuit, Pritchard predicted. There’s a decent chance that a judge will side with the cable operator, as about a quarter to 30 percent of all claims don’t proceed past such a motion, he said. Moreover, cases that rely on insider trading allegations and publicly available statements from company press releases are even more likely to falter, he said. “If all you've got to back it up is examples of stock sales, that’s pretty thin.”