I'm not sure how much more damage this class-action lawsuit will do. But it can't be good for Edison's future.
The named Defendants are Edison, Adam Feild, H. Christopher Whittle and Christopher D. Cerf ("Defendants"). The docket number of the case is 02-CV- 4269. The Court is located at 500 Pearl Street, New York, New York.
The Complaint charges Defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)-5 promulgated thereunder and Section 20(a) of the Exchange Act of 1934. Edison is the largest for-profit private manager of public schools and charter schools in the United States. Between December 14, 1999 and May 14, 2002 inclusive (the "Class Period") Edison reported impressive financial results from its operations and in particular the Company reported spectacular growth in revenue. However, the Complaint alleges that Edison's financial reporting was false and misleading because it failed to disclose that from fiscal year 1999 until the first six months of fiscal year 2002, Edison never actually received a material portion of the revenue supposedly realized by the Company. An investigation by the Securities and Exchange Commission (the "SEC") revealed Edison recorded as "revenue" monies it paid for expenses such as teachers' salaries, students' transportation and utility bills that were remitted directly by school districts.
In addition, the SEC investigation revealed two more accounting improprieties committed by Edison. Between 1999 and 2001, Edison improperly accounted for proceeds of a warrant purchased by a philanthropic organization causing the Company to overstate its balance sheets by $1.9 million. The SEC investigation also revealed that in 1999, Edison improperly accounted for a severance agreement between the Company and one of its senior officers causing Edison to overstate its balance sheets by $2.5 million. As a result of the SEC investigation Edison will restate its financial results for the Class Period.
When news of Edison's false and misleading accounting practices reached the market, the price of Edison's stock fell dramatically, causing harm to members of the Class. Plaintiff seeks to recover damages and other relief on behalf of all members of the Class. Plaintiff is represented by the law firms of Goodkind Labaton Rudoff & Sucharow LLP and Faruqi and Faruqi LLP both of New York, New York and two firms with extensive experience prosecuting class actions on behalf of defrauded investors.