Overview
In April 2017, attorneys for national plaintiffs firm Cohen Milstein, lead counsel in a class action lawsuit against Harman International Industries (NYSE: HAR), announced a $28.25 million settlement in a securities class action suit led by the Arkansas Public Employees’ Retirement System (“APERS”), who had been appointed as Lead Plaintiff. The case was brought on behalf of a class of investors who purchased Harman stock between April 26, 2007 and February 5, 2008. The suit alleged that Harman repeatedly issued false and misleading statements about the state of its Personal Navigation Devices (“PND”) business, causing its common stock to trade at artificially inflated prices. In March 2017, Samsung Electronics announced that it had completed its acquisition of Harman International Industries.
Case Background
Cohen Milstein is lead counsel in a lawsuit in the United States District Court for the District of Columbia on behalf of its client and on behalf of other similarly situated purchasers of Harman International Industries, Inc. (“Harman” or the “Company”) (NYSE: HAR – News) common stock between April 26, 2007 through and including September 24, 2007 (the “Class Period”).
The complaint charges Harman and several of its officers and directors with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). It is alleged that defendants omitted or misrepresented material adverse facts about the Company’s financial condition, business prospects, and revenue expectations during the Class Period. Harman claims to be a leading manufacturer of high-quality, high fidelity audio products and electronic systems for the automotive, consumer and professional markets in the Americas, Europe, and Asia. The Company operates under the brands names Harman Kardon, JBL, Revel, Mark Levinson, Infinity, Lexicon, Soundcraft-Studer, AKG, Becker, and QNX, and is traded on the New York Stock Exchange.
The complaint alleges that on April 26, 2007, the Company announced that it had entered into a contract in which two investment funds affiliated or sponsored by private investment companies, Kohlberg Kravis Roberts & Co. L.P. (“KKR”) and GS Capital Partners VI Fund, L.P. (“GSCP”) (KKR and GSCP are collectively referred to as the “Purchasing Companies” herein), would merge with Harman (the “Merger”). According to the complaint, the Merger was valued at approximately eight billion dollars ($8,000,000,000).
Specifically, the complaint alleges that, during the Class Period, defendants issued numerous materially false and misleading statements which caused Harman’s securities to trade at artificially inflated prices. As alleged in the complaint, these statements were materially false and misleading because they misrepresented and failed to disclose that: (1) the Company had breached the Merger agreement with KKR and GSCP and thus placed the Merger in serious doubt; (2) the Company needed to sustain higher research and development (“R&D”) costs primarily related to its automotive platform awards; (3) the Company’s inventory was greater than disclosed and was negatively impacting its cash flows; (4) its relationship with Daimler-Chrysler had materially worsened; (5) a material adverse change in Harman’s business had occurred which related to capital spending; (6) the Company’s financial health had generally deteriorated; and (7) as a result of the foregoing, the Company’s statements about its financial well-being, earnings, and future prospects were lacking in a reasonable basis when made.
According to the complaint, on September 21, 2007, the Company shocked the market and announced that the Purchasing Companies “no longer intend to complete the previously announced acquisition . . . KKR and GSCP have informed Harman that they believe that a material adverse change in Harman’s business has occurred, that Harman has breached the merger agreement and that they are not obligated to complete the merger.” The complaint alleges that this news caused the Company’s share price to fall from a closing price of $112.25 on September 20, 2007, to close at $85.00 on September 21, 2007, on unusually heavy volume. Then, on September 24, 2007, the complaint alleges that the Company announced that it would fail to meet its financial guidance for the quarter ended September 30, 2007, and needed to significantly reduce its estimates for the FY 2008. According to the complaint, this news caused the Company’s share price to fall to $80.31 on extremely high volume of over 14.5 million shares.
On February 15, 2008, Judge Richard W. Roberts of the U.S. District Court for the District of Columbia entered an order appointing the Arkansas Public Employees’ Retirement System as lead plaintiff and Cohen Milstein as lead counsel.
On February 29, 2016, the U.S. Supreme Court denied Harman International Industries, Inc.’s petition for writ of certiorari, declining to consider whether the D.C. Circuit improperly revived a securities class action alleging that defendants omitted or misrepresented material adverse facts about the Company’s financial condition, business prospects, and revenue expectations.
The Supreme Court’s order keeps intact the D.C. Circuit’s June 2015 decision reversing the dismissal of this securities fraud class action. This decision determined the scope of protection afforded by the so-called “safe-harbor” for forward-looking statements in the Private Securities Litigation Reform Act (PSLRA) of 1995. The D.C. Circuit held that cautionary statements are not “meaningful,” when, as in the case of certain of Harman’s cautionary statements, they warn against risks that have already transpired or are misleading in light of historical facts. This holding is a significant win for investors, since it means that defendants cannot invoke the protection of the PSLRA’s safe harbor when, despite boilerplate cautionary language, their statements nonetheless mislead investors.