Philadelphia law firm Schiffrin and Barroway has announced that it are seeking relief on behalf of unnamed Electronic Arts shareholders, who claim they have been adversely affected by EA's profit warning
announced last week and stock sales by senior Electronic Arts executives in the weeks prior to the announcement.
The details of the complaint allege that Electronic Arts "failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that increased competition from its competitors was eroding EA market share; (2) that hardware shortages were material; (3) that EA continued to suffer from operating margin compression; and (4) that as a result of the above, the Company's statements about its financial performance were lacking in any reasonable basis when made."
The complaint specifically charges CEO Larry Probst and CFO Warren Jenson with violations of the Securities Exchange Act of 1934, suggesting that the two made misleading comments about the company’s financial results, before selling almost $19 million worth of company stock. According to the Silicon Valley-based San Jose Mercury News, seven EA executives in total sold stock in late January, for totals ranging from $1 million to over $10 million.
EA spokesman Jeff Brown claims that the exercising of stock options was merely "diversification", adding that "the stock has been doing very, very well, and it was time to diversify their portfolio." Brown added that the trading window - the time when insiders are allowed to trade company shares - had just opened on January 25th, after being closed for more than two months.
The company's profit warning lowered its fiscal 2005 outlook to between $3.1 billion and $3.13 billion, down from $3.28 billion to $3.33 billion, and sent EA's shares plummeting almost 15 percent.