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It seems like an almost weekly occurrence. Once again,
a company and its insiders disseminate glowing reports
about their company’s future even though the company
has significant internal problems. While the public buys;
the company and its insiders sell. Then, the true
condition of the company emerges and the unsuspecting
buyers are left with losses, while the insiders will have
a great holiday season because of their huge profits.
The latest example is FARO Technologies, Inc.
(NASDAQ: FARO). FARO engages in the design,
development, marketing, and support of portable,
software-driven, 3D measurement systems for a range
of manufacturing and industrial applications. Since
May of 2004, in particular, FARO claimed that its products
could increase productivity and profitability by eliminating
manufacturing errors. Supposedly, the Company had
implemented "lean manufacturing" principles that
purportedly increased its production capacity, among
other improvements, by "eliminating wastes," such as
overproduction, wait time, inefficient processes, and
product defects.
Investors would later discover that this wasn’t the case.
On July 18, 2005, FARO revealed that it had a backlog
of unfilled customer orders that had grown significantly
in the second quarter of 2005. At the same time, the
Company lowered its earnings guidance for that quarter.
But more troubling news would follow. On
November 3, 2005, FARO disclosed that it had incurred
$1.6 million in "inventory costing and consumption
variances . . . due to processing problems relating to
the implementation of our new accounting and inventory
management systems." FARO also admitted that it had
not been able to keep up with customer orders, in
particular, "late arriving Asian orders in Q2." The
market reaction was swift and the price of FARO stock
plummeted $4.39, or 19.6% the following day. It has
been alleged that corporate insiders were motivated
to deceive the market about the true condition of the
Company in order to sell over 1.48 million of their
personally held FARO shares for profits of over
$40.9 million, and to complete the acquisition of
iQvolution AG using FARO stock.
Investors, who purchased FARO between May 6, 2004,
and November 3, 2005, are affected.
School Gets Flunked by Regulators
If a private school gets flunked by its regulator, who
suffers most? The answer, as you have probably
already guessed, is its investors.
The school that was flunked is the Interboro Institute,
a wholly-owned subsidiary of Yonkers-based EVCI
Career Colleges Holding Corp. (NASDAQ: EVCI).
Interboro offers degree programs leading to the
Associate in Occupational Studies degree and Associate
in Applied Sciences degree. It has a main campus
in mid-town Manhattan; and extension centers in
Flushing, New York and in the Washington Heights
section of Manhattan, New York. Interboro also has
a college site in Yonkers.
Interboro attracted the attention of investors because
it very aggressively sought to increase its student
enrollment. The Company did not, however, disclose
to its investors that it didn’t have adequate libraries,
equipment and teaching staff to support these
additional students as required by New York State
Education Department's educational minimum standard
requirements.
However, as you would suspect, Interboro’s inadequacies
would eventually be revealed. On October 19, 2005,
EVCI announced that it had received a draft report of
a compliance review undertaken by the NYSED which
included assertions of irregularities in its admissions
practices and a proposed determination to deny extension
center status for Interboro's college site, located in
Yonkers, New York. This announcement stunned the
market, but more bad news would follow for EVCI
investors. On December 6, 2005, EVCI disclosed the
final determination was to deny extension center status
for its' Yonkers location. Moreover, the Company
revealed that it had been required to downsize its
student enrollment at all of its college site locations
in New York City. This news devastated EVCI investors
and its stock plummeted to a low of $1.81 on
December 6, 2005.
Investors who purchased EVCI between November 14, 2003
and October 19, 2005, are affected.
If you are an affected FARO Technologies or EVCI investor
or an affected investor in Stone Energy, Universal American
Financial Corp, or NL Industries, you may wish to contact us
at info@securitiessleuth.com so that we can discuss your options.
Cases Under Investigation
Stone Energy Corp. (NYSE: SGY). On October 8, 2005, Stone
Energy stunned the market when it announced that it intended
to take a significant reserve write-down. This was the result of
an internal investigation into its reserve practices. It has been
alleged that previously the Company was materially overstating
its financial results by overvaluing its oil reserves through
improper and aggressive reserve methodologies. Investors
who purchased between June 17, 2005 and October 6, 2005
are affected
Universal American Financial Corp (NasdaqNM: UHCO)
After a period when the Company had been touting its future
while the Company and insiders sold over $200 million in
stock, on October 28, 2005, investors realized the Company’s
future prospects weren't so rosy after a 22% year-over-year
decline in net income was announced. The market reacted
strongly and UHCO stock plummeted by 33%. Investors who
purchased between February 16, 2005 and October 28, 2005
are affected.
NL Industries (NYSE: NL) On November 14, 2005, NL Industries
disclosed that it will restate its financial statement for the year
ended December 31, 2004 and the quarters ended
March 31, 2005 and June 30, 2005. Investors who purchased
NL stock between May 4, 2004 and November 14, 2005 may
be affected.
Now with respect to settled cases. If you are an affected
investor – you purchased any of these stocks during the
relevant class period, you may wish to contact the claims
administrator to obtain additional information. Remember,
if you don’t submit your claim form, you won’t receive your
proportionate share of recovery.
Cornell Companies, Inc. (CRN)
Class Period: March 6, 2001 to March 5, 2002
Claims Deadline: March 3, 2006
Claims Administrator: Gilardi
Corvis Corp. (CORV)
Class Period: August 22, 2000 to May 25, 2001
Claims Deadline: January 27, 2006
Claims Administrator: Berdon Claims
Ultimate Electronics, Inc. (ULTE)
Class Period: May 1, 2002 to August 26, 2002
Claims Deadline: January 27, 2006
Claims Administrator: Gilardi
Metromedia Fiber Network, Inc. (MFNX)
Class Period: January 8, 2001 to July 2, 2001
Claims Deadline: January 27, 2006
Claims Administrator: Gilardi
Micromuse, Inc. (MUSE)
Class Period: January 18, 2001 to May 17, 2004
Claims Deadline: January 9, 2006
Claims Administrator: A.B. Data
Healthtronics Surgical Services (HRTN)
Class Period: January 4, 2000 to July 28, 2003
Claims Deadline: December 31, 2005
Claims Administrator: Garden City
Contact info: info@gardencitygroup.com or 800.327.3664
Again, if you are affected by a settled case, then you should
contact the claims administrator (rather than us). However,
if you are an affected investor in any of the companies under
investigation, you many wish to contact us so that you
can consider your options.
Likewise, if you happen to be aware of corporate restatements
or other financial fraud -- especially if you're a victim --
you're encouraged to contribute to the Sleuth by giving your
own tip-offs at www.securitiessleuth.com or by e-mailing
info@securitiessleuth.com. You can also call Mark McNair
at 877-511-4717. If you have a friend or colleague you
think would benefit from The Sleuth, please pass along
this issue and ask them to sign up at
www.cartville.com/app/join.asp?MerchantID=47994.
Warmest regards,
Mark McNair
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