BUSINESS

BlackBerry Shareholder Lawsuit Dismissed: Execs Guilty Of ‘Mismanagement,' Not Fraud

04/02/2013 03:55 EDT | Updated 04/02/2013 04:05 EDT
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SAN JOSE, CA - SEPTEMBER 25: Research in Motion (RIM) CEO Thorsten Heins speaks during the BlackBerry Jam 2012 conference at the San Jose Convention Center on September 25, 2012 in San Jose, California. RIM CEO Thorsten Heins kicked off the three-day BlackBerry Jam 2012 conference with a look at the new BlackBerry 10 opereating system. The conference runs through September 27. (Photo by Justin Sullivan/Getty Images)

A U.S. federal court judge in Manhattan has dismissed a class-action lawsuit against BlackBerry on the grounds that it was mismanagement, and not fraud, that led to the Canadian smartphone maker’s precipitous stock price decline.

Investor Robert Shemian first filed the lawsuit in 2011 on behalf of U.S. shareholders who bought the stock from December, 2010, through June, 2011.

The lawsuit claimed BlackBerry, then still called Research In Motion, had defrauded investors by issuing rosy sales forecasts even as the company struggled to deliver a next-generation smartphone and its first-ever tablet computer.

But U.S. District Judge Richard Sullivan dismissed the lawsuit on Friday.

Corporate failings alone do not give rise to a securities fraud claim. Here, the facts alleged by (shareholders) support a finding of corporate mismanagement, not [mal]feasance,” the judge wrote, as quoted at Reuters’ On The Case blog.

The lawsuit had argued that the setbacks to the BlackBerry 10 generation of phones and the BlackBerry PlayBook tablet were known to management, who misled investors with positive earnings forecasts, according to the N4BB blog.

But despite tracking down 11 informants to support their claims that management knew in advance, Judge Sullivan ruled the shareholders didn’t provide enough evidence to allow the lawsuit to go forward.

The judge did note that the informants’ assertions were "damaging to a claim of managerial competence."

BlackBerry's bosses "have paid a price for their mistakes by way of demotions, terminations and sizable financial setbacks," the judge said, as quoted at Reuters.

RIM shares traded for between $50 (U.S.) and $75 (U.S.) for much of 2010, before beginning a long, two-year dive that saw shares bottom out below $7 per share, before bouncing back somewhat with the release of the BlackBerry Z10 phone this year.

The BlackBerry smartphone has seen its global market share slide from 8.1 per cent at the end of 2011 to 3.2 per cent in the last quarter of 2012, according to research firm IDC.

But the company surprised analysts with a positive earnings report late last month, and announced it had sold 1 million of its new Z10 smartphones.

Nonetheless, most analysts expect the company will continue to struggle to regain its position in the smartphone market that it once dominated.

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