DETROIT -- A lawsuit alleging that billionaire investor Kirk Kerkorian engaged in illegal "insider trading" of DaimlerChrysler shares has been tentatively cleared for trial by a federal judge.
The lawsuit alleges that the Las Vegas casino mogul and his Tracinda Corp. investment company sold more than 7.5 million DaimlerChrysler shares over three months beginning in March 1999 after receiving inside information about the automaker's declining cash flow and profits.
When the information was made public on July 29, 1999, DaimlerChrysler shares fell 8.8 percent. The lawsuit alleges that by selling his shares early, Kerkorian saved more than $120 million. It alleges he sold the stock for more than $661 million.
At the time of the alleged insider trading, Kerkorian was DaimlerChrysler's biggest shareholder.
In a ruling late last month, U.S. District Court Judge Florence-Marie Cooper dismissed two of the grounds for the lawsuit but let a third one stand, allowing the lawsuit to advance.
Cooper narrowed the scope of the lawsuit to an alleged violation of Section 20A of the U.S. Securities Exchange Act of 1934.
Under Section 20A, Kerkorian would only face potential liability for damages suffered by people who traded "contemporaneously" with Kerkorian and Tracinda, buying DaimlerChrysler shares on nine specific dates in 1999 when the lawsuit contends that Kerkorian was selling his stock based on inside information.
But the plaintiffs face many legal hurdles before the lawsuit can proceed. Among other challenges, they will have to plead and prove a separate underlying violation of the Securities Act, or a so-called "predicate violation."
The lawsuit, which seeks class-action status, was filed in California in August 2003 on behalf of Donald Johnson and other minority shareholders of DaimlerChrysler.
Tracinda and James Alijan, a Tracinda officer who also was a DaimlerChrysler board member, are named as co-defendants.
In a statement on Monday, Tracinda played down the potential importance of Cooper's decision.
"There has been no finding of fact, and we are only now going to discovery and certification where the plaintiff first needs to establish a class and a case," the company said.
Ironically, Kerkorian is suing DaimlerChrysler on grounds that the 1998 deal that created the world's No. 5 automaker was deceptively billed as a "merger of equals" rather than a takeover of Chrysler.
He is seeking $1.35 billion plus other expenses.