Investors Sue Harley-Davidson over Stock Market Activity
July 28, 2005
Filed under Features
Several class action lawsuits have been filed against Harley-Davidson Inc. and two of its officers alleging securities violations and false and misleading accounting practices that caused the stock of Harley-Davidson to be inflated.
The lawsuits claim that former CEO Jeffrey Bleustein and his successor James Ziemer and the company used “false” accounting measures to hide the fact that sales of Harley-Davidson motorcycles were slowing and to inflate the price of Harley-Davidson stock.
The lawsuits further claim that Bleustein and Ziemer then sold 740,000 shares of Harley common stock for approximately $45.9 million prior to making a public announcement of the softening motorcycle sales on April 13.
In reporting its first quarter financial performance, Harley-Davidson noted that it was cutting its planned 2005 unit shipments by about 3% and said that it might not make its previously announced 2007 production goal of 400,000 units.
U.S. retail sales of Harley-Davidson motorcycles during the first quarter of 2005 were relatively flat with the same period last year, “falling short of our expectations,” said Jim Ziemer, Harley's CFO and CEO elect.
“Despite our continued optimism for the year,” he said, “we feel it is prudent to limit short-term production growth, maintaining demand in excess of supply.”
Shipments this year are now planned to increase from last year's 317,000 units to a target of 329,000 units compared to an original target of 339,000 units.
The news was greeted with unhappiness by the investment community. Tim Conder, a senior analyst with AG Edwards, maintained his BUY rating, after thinking “long and hard” following the “disappointing news” from Harley. He sees production growth of only 5%-6% in 2006 compared to 7%-9% forecast by Harley management.
In a sudden selloff following the announcement, Harley-Davidson stock dropped nearly 20% in two days on a volume of more than 50 million shares, more than 20 times normal volume.
At least five class action lawsuits have been filed since May 18 on behalf of investors who purchased Harley-Davidson stock between Jan. 21, 2004, and April 14, 2005.
In a prepared statement, Harley-Davidson denied the accusations. “The company believes the allegations in the lawsuits are without merit, and it intends to vigorously defend against these actions,” it said.
The U.S. District Court in Milwaukee where the suits have been filed has not ruled whether or not a class action is proper in this situation.