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3Com faces insider trading lawsuit

Bosses talked up share price for personal gain, claims suit

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Internet Security Threat Report 2014

3Com has been hit by a class action which alleges the company and unnamed "officers and directors" violated the US Securities Exchanges Act of 1934 by using company money to buy shares in order to boost the stock's value and thus allow the same "insiders" to sell their own shares for an even greater return. The suit, filed in the US District Court for Northern California, claims $130.4 million was spend buying back 4.3 million 3Com shares during the company's first and second quarters of the 1999 financial year. It also claims that 3Com staff made false and misleading claims about the company's performance in order to talk up the share price. And indeed between 1 September 1998 and 32 December 1998, 3Com's share price more than doubled, rising from $23 1/8 to $51 1/8. From November 1998, says the suit, 3Com insiders began selling 4.2 million of their own shares at prices as high as $48.69 per share to net, according to the complaint, $189 million. During February 1999, 3Com's stock fell back to $30 9/16 when it emerged Intel was trimming 3Com's share of the network card market. The suit claims 3Com executives said the company's business plan was intact causing its share price to rally slightly. Unfortunately, at the end of Q2 99, 3Com admitted its sales of modems and network cards were well down and that it was unlikely to match previous forecasts by some margin. By 3 March, the company's share price hit a low of $22 3/4. The action was filed by Atlanta-based law firm Chitwood & Harley, which is now asking 3Com common-stock holders who purchased stock between 22 September 1998 and 2 March 1999 to support the suit. 3Com had yet to respond to the suit at the time of posting. ®

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