CARROLLTON, Texas-CellStar Corp., Carrollton, Texas, announced Nov. 5 it has signed a memorandum of understanding to settle with the State of Wisconsin Investment Board lawsuits filed against the company for alleg’ed securities fraud in 1996. The state of Wisconsin was the lead plaintiff in a consolidated group of individual class-action shareholder lawsuits.
CellStar, which distributes wireless handsets and related products, was sued after its stock price dropped between October 1995 and April 1996. Plaintiffs charged, among other things, the company’s management fraudulently inflated sales figures to boost the stock price.
A U.S. District Court in Dallas had allowed the Wisconsin Investment Board to lead the individual shareholder lawsuits filed against CellStar in a decision considered a major test of the federal Private Securities Litigation Reform Act of 1995. That statute allows large shareholders to assume the role of lead plaintiffs in class-action shareholder lawsuits as a means to impose some discipline on this kind of litigation, which critics contend has become dominated by costly and frivolous charges.
CellStar said it expects to recognize a one-time charge of about $8 million for the quarter ending Nov. 30 to reflect payments to plaintiffs and legal costs.
“While we are confident that CellStar ultimately would have prevailed … the process was going to be drawn out, distracting for management and expensive,” said Dick Gozia, president and chief executive officer of CellStar.
