Motorola Hit with Two Stock-Drop Suits

A Chicago law firm has filed two stock-drop suits against Motorola, alleging the communications company caused large losses in its defined contribution plan by not being forthright about sales of its RAZR2 phone.
Attorney Edward A. Wallace of the firm Wexler Wallace LLP alleged in the suits filed in federal court in Chicago that Motorola executives made a series of misleading pronouncements that inaccurately portrayed RAZR2 sales as being much more robust than they actually were. The RAZR2 phone was introduced in August 2007.

On a company admission that the sales were lower than Motorola had hoped, “the market’s reaction was swift and furious,” Wallace charged in the suits. The share price plummeted 18.8%, or $2.31 per share, to close at $10.01 per share on January 23, 2008, at its lowest level in five years.

The suits claim the share-price drop caused the plan to experience losses that would not have occurred if the company had been more forthcoming about its competitive battles with other smartphone makers, including Apple and its iPhone.

The suits ask for class-action status to represent participants and beneficiaries who had company stock holdings between July 1, 2007, and the present. They claim the plan held $147,748,093 and $383,338,516 worth of Motorola common stock for the 2008 and 2007 plan years.

The two cases were filed on behalf of Joe M. Groussman, a resident of Kings County, Washington, and Angelo W. Orlando, a Florida resident.

According to the suits, despite Motorola’s public statements during the period examined, Motorola was losing “significant market share” to the iPhone, Samsung’s Sync, and several Nokia smart phone devices.  The RAZR2 wasn’t different enough from the original RAZR model to support Motorola’s $299 price tag, the suits charge.

Pennsylvania lawyer Howard G. Smith, one of the lawyers representing Orlando, announced in January that he was investigating a potential stock drop suit against Motorola (see “Law Firm Probes Potential Motorola Stock Drop Case”).

The Orlando suit is here. The Groussman suit is here.