NEWS Larry Ellison could be spending more time with his lawyers because a group action alleging securities fraud has resurfaced in California.
A US appeals court has overturned an earlier judgement which dismissed a claim that Oracle had overstated its sales projections and that Ellison knew this as he sold 29 million shares. He, and Oracle, are currently waiting for the judgement on the long-drawn-out attempt by the US government to block the hostile takeover of PeopleSoft.
The revived suit was first filed in March 2001 by a group of investors led by a nursing union pension fund. It was one of over a dozen lawsuits filed against Oracle in the months after Oracle shares dived 50 per cent to around $16 a share.
These lawsuits were filed in early summer of 2001, largely based on the fact that the company had issued a profits forecast in December 2000 promising increased sales in the next quarter. These did not materialise and Oracle's stock took a dive.
Ellison and CFO Jeffrey Henley both sold large numbers of shares in the following January, with Ellison pulling in $900m selling shares for $30 to $32 each. Most of these had been acquired by Ellison for 23 cents a share as he exercised his options.
The suit claims that Oracle's December statement was based on phoney sales invoices and improper revenue recognition and represented a $230m revenue overstatement. It also claims that Oracle knew of problems with its then new 11i Suite but kept quiet about them.
This suit was thrown out of a US district court in 2003, partly due to the vagaries of US company law but also because it offered no specific proof that Oracle top brass knew that the projections were false.
The appeals court disagreed, pointing out that Oracle's own systems allowed the company executives to monitor sales closely. At one point Ellison had claimed that the company knew how much it sold around the world in the previous hour.
Judge Warren Ferguson is reported to have said: "It is reasonable to infer that the Oracle executives' detail-oriented management style led them to become aware of the allegedly improper revenue recognition."
Oracle points out that this ruling merely allows the suit to enter the preliminary stages of a case and claims that the allegations were not supported by any evidence and that, as usual, Oracle would prevail.
Oracle shares are currently bobbing around the $10 mark.
