WASHINGTON (03/21/2000) - Even as Nasdaq investors continue to punish MicroStrategy Inc. for its artful accounting practices, the legal sharks have started to circle.
On the heels of a major revenue revision announcement and a free fall of US$140 yesterday on the Nasdaq, at least five law firms have filed broad class-action suits against MicroStrategy in various federal courts. The suits charge the company, and some of its directors and executive officers, with issuing "materially false and misleading financial statements that materially overstated the Company's revenue, earnings and income," according to a press release issued by one of the firms.
MicroStrategy announced yesterday that it is revising its 1998 and 1999 revenue statements to reflect changes in how it counts income from complex contracts.
The company had been counting much of the revenue up front, sometimes even in closed financial quarters, using accounting methods that increasingly are being called into question.
The company has reduced its 1999 revenue figures to somewhere between $150 million and $155 million from $205.3 million. It now will report a loss of between 43 cents and 51 cents per diluted share for 1999, instead of a profit of 15 cents per diluted share. Revenue figures for 1998 dropped to between $95.9 million and $100.9 million from $106.4 million. Diluted net income per share for 1998 dropped from 8 cents to between 1 and 4 cents.
The Vienna, Virginia-based software and services company was way out in front of a drop in Nasdaq tech stocks yesterday, plunging $140 to close at $86.75. At close of trading today, shares dropped $11.75, or 14 percent, to $75.
MicroStrategy has declined to comment.
Several media outlets have joined the law firms in piling on MicroStrategy and its brash Chief Executive Officer Michael Saylor. The Washington Post, which normally fawns over Saylor and his company, called him a "fuzzy-cheeked mogul" and published a list of "the top 10 ways losing $10 billion cramps your lifestyle."
Two of the law firms that have filed suit -- Schiffrin & Barroway of Bala Cynwyd, Pennsylvania, and Abbey, Gardy and Squitieri of New York -- have declined to comment. Three other firms -- Cauley & Geller LLP of Boca Raton, Florida, as well as Bernstein Liebhard & Lifshitz and Milberg Weiss, both of New York -- didn't return telephone calls seeking comment.
"The facts are not in question, the contracts are good, and all the revenue's going to come," MicroStrategy's Saylor said yesterday.
So far, though, Saylor's bravado has failed to calm market jitters. Nor has it scared away the lawyers, who smell his company's blood in the water.