Risk & Compliance

Shareholders Gang Up on FormFactor

Two complaints accuse the company of providing misleading information about its inventory valuation.
Stephen TaubDecember 4, 2007

Shareholders are suing FormFactor Inc. for allegedly failing to disclose and misrepresenting material adverse facts.

The class-action lawsuit, at least the second of its kind filed against FormFactor in the past few weeks, stems from the company’s announcement in late October that it would be unable to release its third-quarter income statement because it may be required to make adjustments to its historic inventory valuations.

“These potential adjustments could change inventory, gross margin, operating margin and net income from the amounts previously reported for the affected periods,” the company warned at the time. Its stock plunged about 18 percent the following day.

The latest complaint, filed by the law firm Schiffrin Barroway Topaz & Kessler, charges FormFactor and some of its officers and directors with violating securities laws. It also alleges that the semiconductor parts maker improperly accounted for its obsolete inventory, did not prepare financial statements in accordance with generally accepted accounting principles, lacked adequate internal and financial controls, and filed materially false and misleading financial statements.

“Vital accounting and other information was concealed, including a true accounting for the company’s obsolete inventory and serious production constraints,” said another complaint filed last month by the law firm Scott+Scott LLP.