NEW YORK-Gaetano Rainone, who purchased 100 of the 4 million common stock shares ProNet Inc. sold at $25 each May 31, has sued the paging company, charging it misled investors.
The petition for the class action lawsuit alleges that ProNet and certain officers and directors violated federal and state securities laws and common law through misrepresentations and omissions in the prospectus related to the company’s financial condition.
Kelly Love, a ProNet spokesperson, said, “we have hired outside legal counsel and will defend ourselves vigorously.”
The lawsuit was filed June 27 in the state District Court of Dallas County, Texas, six days after ProNet officers announced their expectations that second-quarter cash flow would prove lower than expected. ProNet’s second quarter ended June 30, and final results will be made public in late July.
The primary cause cited June 21 by Jackie R. Kimsey, ProNet chairman and chief executive officer, was “unanticipated competitive response to our partners program with our resellers*…*particularly as the program has accelerated over the last several weeks.”
According to documents filed with the court in the case of Rainone v. ProNet, the plaintiff alleges, in part: “Even though reselling accounts for 51 percent of ProNet’s business, the prospectus failed to disclose the company’s practice of providing significant discounts in its reselling program and the potential serious risks to revenues and cash flows that such company policy entailed. It was from this risky practice, which was not disclosed in the prospectus, that ProNet suffered significant declines in its cash flow upon which the stock market reacted.”
According to the court documents, ProNet’s stock price fell 37 percent June 21, the day of the announcement, and an additional 9 percent the next trading day, June 24. ProNet’s stock closed July 3 at $12.00.
“At the time of the offering, which occurred in the latter part of the second quarter, defendants knew or had information available by which they should have known of the cash flow problems that were being caused by weakness in its reselling program,” the lawsuit states.
