Managers Attacked : Stockholder Files Class-Action Suit Against Wavetek
Wavetek Corp. artificially inflated the market price of its common stock before a 1983 public stock offering and misled investors with a series of overly optimistic financial projections, according to a class-action lawsuit filed Thursday in federal court.
Sixteen Wavetek managers violated anti-fraud provisions of federal securities laws in 1982 by conspiring to “inflate (Wavetek’s) market price,” the lawsuit alleged.
The action was filed on behalf of William B. Weinberger, who owns 200 shares of Wavetek stock, by the San Diego law office of Milberg Weiss Bershad Specthrie & Lerach. It attacks 16 Wavetek managers for “artificially inflat(ing)” the market price of the company’s common stock in order to influence a June 17, 1983, public stock offering.
The lawsuit claimed that Wavetek officers knowingly misled investors with overly optimistic business predictions that suggested a bright future for the company. Instead, according to the lawsuit, the company “was suffering from serious management problems . . . difficulty in sustaining sales growth and (an inability to control) rapidly increasing expenses.”
The subsequent 1983 offering raised $30 million through the sale of 1.7 million shares of Wavetek common stock.
On Thursday afternoon, a Wavetek spokesman said that the company had not yet been served with a copy of the suit and thus would not comment.
The lawsuit also charged that four Wavetek officers with access to “confidential, proprietary information” sold 51,000 shares of Wavetek stock just before the stock plunged from a per-share price of $17 to as low as $5.75.
The four officers named in documents filed on Thursday were former President Louis W. Abbott, who now serves as vice president of special projects; Robert Padgett, former vice president of corporate resources; John Schweikart, vice president of finance and administration, and Henry Reinecke, a group vice president who now serves as senior vice president.
L.F. Rothschild Unterberg, Towbin and Hambrecht & Quist, two underwriting and securities brokerage firms that helped arrange the June, 1983, public offering, were also named as defendants.
Wavetek, which reported a $14.3-million net loss and sales of $75.4 million during the year ended Sept. 28, 1985, had previously recorded a string of profitable years that stretched back to 1975. However, after profits hit a peak of $4.7 million in 1983, Wavetek’s profits fell to $1.4 million in 1984 before moving into the red for fiscal 1985.
Absorbed Write-Offs
In 1985, Wavetek absorbed heavy write-offs from the sale of its Scientific Division, Indiana Division and Digilec Group, three unprofitable operating divisions which the company had purchased just a few years earlier.
During Wavetek’s annual meeting last month, President and Chief Executive John Battin described Wavetek as a company that had weathered an industry slump and subsequently returned to a position where it enjoyed a “healthy balance sheet.”
That balance sheet included nearly $15 million in cash, which Battin said could be used to finance an acquisition.
