A class-action lawsuit against networking giant Cisco Systems was filed on Wednesday in the U.S. District Court for the NorthernDistrict of California over the impact of the company's practice of extending credit to service-provider customers on its stock price between August 10, 1999 and February 6, 2001. The suit comes just one week before Cisco is to report earnings for its third fiscal quarter of 2001.
The lawsuit claims Cisco's practice of extending credit to cash-strapped Internet service providers and telecommunication companies led to the artificial inflation of the company's stock price by driving up sales figures. This allowed Cisco to grow through the acquisition of other companies at the expense of investors who have seen Cisco's stock price plummet, said The Law Offices of Marc S. Henzel, the law firm that filed the suit, in a statement. Cisco executives personally profited by selling shares at the higher stock price, it added.
Cisco could not immediately be reached for comment on the lawsuit.
Cisco executives warned in April that revenue for its third fiscal quarter of 2001 will drop 30 percent from its second-quarter revenue of US$6.7 billion, citing slowing corporate IT spending and a global slowdown in the telecommunication market. Cisco also announced plans to take a restructuring charge of $800 million to $1.2 billion during the third quarter, along with an excess inventory charge of around $2.5 billion.