Paradyne Networks Inc. Securities LitigationParadyne is a developer, manufacturer and distributor of digital subscriber line (DSL) products. The lawsuit claimed that the Defendants misled investors by intentionally failing to disclose that they engaged in a very high risk business strategy. Under the strategy, Plaintiffs allege that the company purchased $35 million worth of customized internet communications equipment for a customer that had not given the company any firm commitment to buy the customized equipment, and the customer ultimately determined not to purchase such equipment from Paradyne. The lawsuit also claimed that Paradyne issued press releases and financial statements that had false and misleading information about Paradyne's financial performance. The lawsuit further claimed that on September 28, 2000, when Defendants announced that the company's previously reported financial results were not representative of its true performance and that the $35 million worth of inventory – previously represented as a valuable asset – was totally worthless, Paradyne's stock fell 41% from a close of $10.00 on September 27, 2000 to a close of $5.90 on September 28, 2000. The Defendants deny they did anything wrong. Defendants claim that they adequately disclosed the risks relating to the inventory build-up to meet the forecasted demands from this and other customers. They further contend that their public filings adequately warned investors of the risk of the practice by Paradyne (and its competitors) to stock inventory based on forecast without having a firm purchase commitment from the customer.
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