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Ellison exposed to shareholders' wrath

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CIOL Bureau
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Spencer Swartz



SAN FRANCISCO: A group of Oracle Corp. shareholders can pursue a class action lawsuit that accuses the business software maker and Chief Executive Larry Ellison of covering up losses, a U.S. appeals court said.



The decision, from the U.S. Court of Appeals for the Ninth Circuit in San Francisco, reversed a lower court ruling.



Oracle, one of the world's biggest makers of software that helps companies automate functions like human resources, said the lawsuit was unfounded. The class action suit was filed by a group of shareholders led by Nursing Home Pension Fund.



"We believe that the allegations ... are wholly unsupported by any evidence, and we are confident that Oracle will prevail when the litigation is concluded," said Oracle spokeswoman Deborah Lilienthal.



The complaint also named as defendants Oracle Chairman, Jeff Henley, who was chief financial officer during the period in question, and Edward Sanderson, executive vice president at the time. Sanderson is no longer with the company.



The executives were accused of making comments, shortly before Oracle reported weaker-than-expected second-quarter earnings in 2000, that Oracle would not be hurt by a downturn in the U.S. economy.



Sandy Svetcov, a San Francisco-based attorney for the shareholders, said the class action suit seeks compensatory damages but does not state the exact damages being sought.



Svetcov said the suit argues Oracle's market share plunged about $90 billion in about a month-long period after Oracle reported weaker-than-expected results in its second quarter in 2000.



He added that the law firm at which he works, Stanford Svetcov, Milberg Weiss Bershad Hynes & Lerach, is the only law firm representing the shareholders.



ACCUSATIONS, STOCK SALES



The Appeals Court said the District Court had ruled against the group of shareholders because the allegations in the original complaint "did not create a strong inference" that statements by the three executives about Oracle's financial performance "were known to be false when made."



But Appeals Court Judge Warren Ferguson in his opinion said the shareholders do have a basis for legal action.



"Together, the false representations, both as to current facts and future estimated profits and sales, as well as the improper revenue adjustment and unusual stock sales, provide a basis for the cause of action against Oracle and each of its three top executives," Ferguson wrote.



The lawsuit accused Oracle of covering up losses -- stemming from the release of a major software product in May 2000 -- by creating false sales invoices and improperly recognizing past customer overpayments as revenue, according to court documents.



The group made the accusations in an amended complaint that was dismissed by a U.S District Court in March 2003.



The shareholders accuse Oracle of releasing the software product, which automates business processes such as finances and sales, without sufficient technical development and argue that several defects soon appeared in the software that contributed to poor sales during Oracle's second quarter of 2000.



The Appeals Court also called the timing of stock sales by Ellison and Henley "suspicious."



Ellison sold about $900 million worth of Oracle shares, about two percent of his total holdings at the time, between Jan. 22 and Jan. 31, 2001, roughly one month before Oracle reported lower-than-expected sales, the court said.



Henley sold about one million shares, about seven percent of his holdings at the time, at $32 per share on Jan. 4, 2001, the court said.



Oracle shares traded at $10.08 after hours, up from a close on Nasdaq of $10.05 on Wednesday.



Reuters

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