SOUTHFIELD, Mich. (June 19, 2000) — A Los Angeles law firm has filed a class action lawsuit against Federal-Mogul Corp., alleging it violated several federal securities laws.
The Law Offices of Lionel Z. Glancy said it has initiated a filing with the U.S. District Court of the Eastern District of Michigan that contends Federal-Mogul disseminated materially false and misleading statements and purposely omitted information regarding the nature of acquisitions, integration, revenue and earnings.
Those violations artificially inflated the automotive industry supplier´s stock price to a high of $64.88, Glancy said in a prepared statement. When Federal-Mogul´s stock fell to a low of $9.44, it inflicted "enormous damage on investors," the law firm said. No one at the firm could be reached for further comment.
Federal-Mogul has not yet been served with papers, a company spokeswoman said. "Our expectations are that once we are served, we would find this is totally without merit."
Glancy now is looking for shareholders who purchased common stock in the supplier between Oct. 22, 1998 — the month Federal-Mogul acquired Cooper Industries Inc. — and May 25 of this year to join the suit.
"When a stock has dropped precipitously, for whatever reason, there are usually some type of shareholder activities," said Richard Hilgert, an analyst with the Detroit-based First of Michigan Division of Fahnstock & Co.
This particular type of action is to be expected when a company´s stock drops as much as Federal-Mogul´s has, the supplier spokeswoman said, adding that "when one (shareholder) files, they all follow suit. If you look through our (Securities and Exchange Commission filings), you´ll see a lot of Federal-Mogul executives have purchased...and not sold during this time."
Separately, New York-based rating agency Fitch IBCA lowered its rating on Federal-Mogul´s senior unsecured debt to BB+ from BBB- with a negative outlook.
The downgrade reflects the supplier´s lower than expected operating performance the last few quarters, its impaired free cash flow for debt reduction and reduced financial flexibility, Fitch said.
Federal-Mogul also assigned the additional responsibilities of corporate controller to Michael L. Pape who had been acting vice president and operations controller since 1998. Mr. Pape takes over the duties of Ken Slaby who left the company to pursue other business opportunities, Federal-Mogul said. Mr. Slaby´s departure is just the latest in several key management departures and additions.
Alan C. Johnson returned to the company in April as executive vice president for the Americas and Asia after leaving in 1999 to become president and chief operating officer of battery maker Exide Corp. Then on June 7, Federal-Mogul named G. Michael Lynch executive vice president and chief financial officer, replacing Thomas Ryan, who resigned in March.