LeapFrog
Cohen Milstein is lead counsel for the Parnassus Fund and the Parnassus Equity Income Fund (“Parnassus”) in a securities fraud lawsuit against toy manufacturer LeapFrog Enterprises, Inc. (“LeapFrog”). In a November 23, 2005 order, Judge Ronald M. Whyte ruled that Parnassus should serve as lead plaintiff in the class action, which is pending in U.S. District Court in San Jose, California. Judge Whyte’s ruling came despite vigorous opposition by counsel for two smaller investors, who were also seeking appointment as lead plaintiff. Judge Whyte rejected arguments by the two small investors – who had been previously appointed as lead plaintiff in the action prior to filing an Amended Complaint which vastly expanded the class period and claims over which they had been appointed as lead plaintiff. The Amended Complaint encompassed a class period and claims already alleged by Parnassus in a different action against LeapFrog. Judge Whyte appointed Parnassus as the sole lead plaintiff over the entirety of the expanded claims and class period (July 24, 2003 – October 18, 2004). On August 1, 2006, Judge Whyte dismissed the Amended Complaint, but granted leave for Parnassus to amend the complaint. On September 29, 2006, Parnassus filed a Second Amended Complaint, which Defendants have now moved to dismiss. The parties have fully briefed and argued Defendants’ motions and are awaiting a ruling from Judge Whyte. The Second Amended Complaint charges LeapFrog and certain of its current and former officers with misleading investors by making numerous false statements about LeapFrog’s current and future business results, including allegations that LeapFrog falsely claimed to have remedied deficiencies with its supply chain and IT system and allegations that defendants knew that LeapFrog was losing millions of dollars in sales and profits to Mattel's competing PowerTouch product. The Second Amended Complaint further alleges that defendants' false and misleading statements caused the price of LeapFrog stock to trade at artificially inflated prices and took advantage of the artificial inflation to sell millions of their own LeapFrog shares. After the close of the market on October 18, 2004, and after repeated assurance to investors that LeapFrog would report solid financial results in the third and fourth quarters of 2004 and that the distribution and supply chain problems had been fixed, the defendants announced that LeapFrog’s 2004 third quarter results would be significantly worse than the guidance previously provided by the defendants. In response, the price of LeapFrog’s stock plummeted $6.21, or approximately 34%, causing class members to suffer massive economic losses. On September 30, 2007, Judge Whyte dismissed the Second Amended Complaint, but granted leave for Parnassus to amend the complaint. On November 21, 2007, Parnassus filed a Third Amended Complaint. On April 18, 2008, the Parties entered into a stipulation of proposed settlement for $2.3 million. A motion for preliminary approval of this settlement is currently pending before the Court. |
