Armored vehicle maker Force Protection Inc. has agreed to pay $24 million to settle a class-action lawsuit that alleged some its former top executives profited by selling stock while failing to warn shareholders about accounting problems and other issues. The proposed settlement, a majority of which will be covered by insurance, will have to be approved by a U.S. District Court.
The lawsuit was filed more than two years ago by a class of individual shareholders. It was alleged that certain executives did not notify their investors about delays in delivering the company’s trademark blast-resistant vehicles to the U.S. military or about the failure to fix its accounting system. Those shortcomings affected the company’s ability to win contracts from the Department of Defense, according to the lawsuit.
The executives profited by selling stock for tens of millions of dollars, according to the Complaint. It was alleged further that a former Force Protection chairman, investor Frank Kavanaugh, sold more than $64 million worth of shares before stepping down in June 2007. Gordon McGilton, the company’s ex-president who left in January 2008, sold shares worth more than $23 million. But instead of disclosing information about the difficulties Force Protection faced, executives reassured investors of their confidence in the company’s future. As a result, the share price continued to trade at a high rate, according to allegations in the Complaint. The filing of the suit in March 2008 came after a year of dramatic decline in the company’s stock. It dropped from a high in May 2007 of $30.27 to less than $3 a share.
The company’s accounting problems came to light when Force Protection said it would be late in filing its annual report for 2007 and would restate earnings for some previous reporting periods. Executives blamed the problem on an accounting error. Within days, two top executives resigned. Those men, Raymond Pollard, chief operating officer, and Michael Durski, chief financial officer, were named as Defendants in the lawsuit, along with Kavanaugh, McGilton and Michael Moody, the current president and chief executive.
Executives didn’t address the company’s vehicle delivery problems even after a government report found that Force Protection had missed 98% of its deadlines. The lack of accounting oversight jeopardized the company’s ability to secure future contracts. A day after the price hit its peak in 2007, Kavanaugh made his final reported sale of Force Protection shares, according to filings with the SEC. Those filings showed he sold more than 5.3 million shares in the ten months leading up to that peak. Force Protection still faces other shareholder lawsuits in several states.
Source: Post and Courier
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