Motricity faces insider trading allegations in new class action suit
Law firm Goldfarb Branham LLP announced a class action against struggling mobile content services firm Motricity concerning alleged violations of shareholder protection laws. Goldfarb Branham claims Motricity inflated its stock through distorted and false statements and may have engaged in insider trading.
"According to the lawsuit filed in the Western District of Washington, Motricity officers began issuing statements in June of 2010 that did not accurately reflect material facts about the effect of the industry's rapidly growing competition on the company's stagnating growth rate," securities lawyer Hamilton Lindley said in a statement. "Furthermore, [former Motricity CEO Ryan Wuerch] and senior executives have been accused of orchestrating an $11 million insider trading scheme that has had devastating effects on the company's performance."
Another class action suit filed by Kahn Swick & Foti LLC accuses Motricity of violating the Securities Act of 1933 and the Securities Exchange Act of 1934. According to the suit, Motricity priced its June 2010 IPO at $10 per share, for net proceeds of $51.4 million, but misled investors by asserting the company would "continue to achieve success despite the increasing popularity of smartphones." Kahn Swick & Foti claim that as a result of Motricity's statements, its stock traded at artificially inflated prices, peaking at $30.74 per share on Nov. 9.
Activist investor Carl Icahn is Motricity's largest investor with 14.6 percent of the firm's outstanding shares, down from 19.1 percent after last year's IPO. His son Brett sits on Motricity's six-person board of directors alongside Hunter Gary, who is married to the daughter of Icahn's wife.
Motricity and Wuerch agreed on Aug. 21 to terminate Wuerch's employment with the firm and to end his membership on its board of directors. Jim Smith, named Motricity president and COO in early 2009, will step into the CEO seat on an interim basis; Motricity's board has already initiated a search for a permanent replacement, adding it will consider Smith as well as external candidates.
Wuerch's exit follows just days after Motricity reported second quarter losses of $4.3 million, less than the $11.6 million net loss reported a year earlier--in addition, the mobile content services firm projected third quarter revenues of $31.5 million to $32.5 million, far off analyst forecasts of $45 million. Motricity blamed its weak results on increased competition in the international market and closing its $100 million acquisition of mobile marketing startup Adenyo later than expected.
With its stock down 42 percent over the past year, Motricity also is seeking a replacement for CFO Allyn Hebner. The company recently removed its chief strategy and marketing and development officer, Jim Ryan, as well.
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