Several class actions have been filed against retail giant Sears, Roebuck & Co. (NYSE: S) and certain of its officers and directors by stockholders who purchased the company's common stock between January 17 and October 17, 2002. The actions claim that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. The stockholders seek to recover compensatory damages for the loss of value of their stock. |
The stockholders allege that the defendants, throughout this time period, represented that Sears was growing its earnings strongly, driven by its Credit and Financial Products segment, and that it would achieve earnings growth of 22% in 2002 over 2001. In addition, in each of its press releases and SEC reports filed during this period, Sears reported its provisions for uncollectible accounts and, in its 2001 annual report, represented that these reserves were "adequate." These and other statements were allegedly false and misleading because they did not disclose that the company's risk for uncollectible accounts had increased materially throughout this time period and, in addition, that Sears was under-reserving for its uncollectible accounts, which inflated its earnings and balance sheet.
On October 17, 2002, Sears reported in a press release that it would grow its 2002 earnings by 15%, rather than the 22% it had reaffirmed as recently as ten days previously, because of a "$222 million increase in the domestic provision for uncollectible accounts." In addition, according to the press release, earnings for the third quarter were 26% less than those of the previous year. In reaction to the press release, the price of Sears common stock plummeted, falling 32% from an October 16 close of $33.95 per share to close at $23.15 per share the following day, on extremely heavy trading volume.