Oracle fraud suit returns from the dead

Insider trading claims

A federal court has reinstated a fraud case against Larry Ellison and two other senior Oracle executives alleging accounting irregularities and suspicious share sales.

The 9th US Circuit Court of Appeals decided that there was enough evidence for the case to go to court, despite it being dismissed on three previous occasions. The case was brought by disgruntled shareholders and centres on action taken as the dotcom bubble imploded at the end of 2000 and beginning of 2001.

The case alleges that problems with Oracle's 11i suite of products and the wider downturn in the economy hit Oracle sales, but the company covered this up. As late as February 2001 the company was claiming the slowdown was having no impact on its business.

Larry Ellison is named along with Oracle CFO Jeff Henley and Edward Sanderson, an Oracle vice president. The case alleges that the database giant falsely claimed $200m in sales and made reassuring noises to the stock market, despite knowing that business was flagging. Oracle made a profit warning on 1 March 2001.

Ellison sold 29m shares for $900m in late January before the bad news became public. This was his first Oracle stock trade in five years. According to the complainant's filing, available for download here, Ellison paid 23 cents per share for these shares and sold them for between $30 and $32.

The judge noted that it is usual to consider what percentage of an individual's total holdings were sold when considering an allegation of insider dealing. Ellison sold just 2.1 per cent of his holding, but made about $900m. But the size of the profit made and Ellison's history of not selling Oracle stock "these factors cast suspicion on the stock trades." Additionally, the sales were made between 22 January and 31 January, just a month before the 1 March profit warning.

The complainant also accuses Oracle of artificially inflating revenues. Oracle is still waiting for a ruling on its attempted takeover of PeopleSoft. ®

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