Skillsoft will face at least three legal suits for damages following its recent disclosure that SmartForce - the Dublin-based firm which it has acquired - improperly booked revenues over three years.
By close of business yesterday, three US law firms had filed class action law suits in the District Court in the state of New Hampshire against SmartForce, and two of its executives, Mr William McCabe and Mr Greg Priest.
The suits have been taken by the law firms on behalf of investors who acquired SmartForce shares between October 19th, 1999 and November 22nd, 2002. The legal firms are inviting investors who lost money on the shares to join the action, to recover damages caused by SmartForce's alleged violation of securities law.
The class action legal suits were lodged over the past three days by law firms: Schiffrin & Barroway; Cauley Geller Bowman & Coates; and Charles J Piven. It follows the disclosure by SkillSoft last week that SmartForce had improperly accounted for revenues over three years from October 19th, 1999.
Shares in SkillSoft slumped by a third following last week's disclosure. The three law firms allege that SmartForce's failure to supply investors with correct financial details over the previous three-year period was fraudulent.
Four complaints were lodged with the court. These allege SmartForce improperly recognised revenue under a reseller agreement, resulting in the booking of revenue before it was received from the resellers; SmartForce recognised revenue for software sales upon shipment, even though the payment schedules for those contracts extended over several years; SmartForce recognised revenue in connection with other customer contracts upon execution of those contracts, even though the terms were four to five years in length; and SmartForce improperly accounted for bad debt, causing an increase in its reserves.
The number of investor suits taken against firms and executives has mushroomed over the past year following the disclosure of irregular accounting at firms such as WorldCom, Tyco and Elan. More than 45 separate suits have already been taken against the bankrupt energy giant Enron.
Class action law suits can take years to bring to trial. As reported last week in The Irish Times, SmartForce already faces a $500 million (€503 million) class action suit for damages relating to a previous profit warning issued by the firm in 1998. A San Francisco law firm Gold Bennett Cera & Sidener initiated the case in 1999 but only recently received clearance for a full hearing from a federal judge.
This complaint alleges SmartForce made untrue statements of material fact to induce the plaintiffs to purchase the firm's shares. It also alleges the scheme enabled defendants to sell shares at artificially inflated prices during 1998.
It is scheduled to be heard in May 2003, about four years after it was first filed.
Shares in SkillSoft fell in early trading on the Nasdaq yesterday but ended the day up 2 per cent to $3.52.
