In a securities fraud class action brought against a publicly traded company and its officers, directors and major shareholders, a federal district court granted in part defendants’ motion to dismiss claims asserted under Section 10(b) of the Securities and Exchange Act and Rule 10b-5.  

Plaintiff alleged that defendants made false or misleading statements and omissions in the company’s public filings, press releases and investor conference calls from February 2003 to May 2005. The court divided these allegations into two categories: (i) false statements regarding the future level of Microsoft’s demand for the defendant company’s products (Microsoft accounted for nearly 90% of the defendant company’s business at the start of the class period) and (ii) omissions concerning price reductions in defendants’ contract extension with AT&T (another of its major customers).  

With respect to the Microsoft allegations, the court noted that the loss of Microsoft business and its impact on the company were “fully disclosed” in “unmistakable terms” in the company’s February 2004 registration statement, which stated that “the revenue we receive from Microsoft Corporation has declined in recent periods and we believe will continue to decline throughout 2004. If we are unable to replace this revenue, our business and results will be harmed.” Accordingly, the court held that plaintiff’s allegation concerning Microsoft could not support its securities fraud claims.  

Defendants did not fare as well with their effort to eliminate plaintiff’s AT&T contract extension allegations. Defendants asserted that they had fully disclosed the extension in 2004 so that the stock declines that plaintiff attributed to disclosures made at the end of the class period in 2005 could not have been caused by alleged omissions relating to the AT&T contract. However, the court ruled that defendants’ pre-2005 disclosures concerning the renegotiated AT&T contract were not “full” and, in fact, omitted material information about the dramatic price reduction defendants were required to accept in order to secure the contract extension. After noting that it could reasonably be inferred that defendants’ 2004 disclosures downplayed the impact of the renegotiated contract, the court declined to dismiss the Section 10(b) and Rule 10b-5 claims to the extent that they were based on the alleged inadequacy of defendants’ public disclosures of the AT&T contract. (West Palm Beach Firefighters’ Pension Fund v. Startek, Inc., 2008 WL 4838671 (D. Colo. Nov. 6, 2008))