DETROIT -- Four employee pension funds are suing Delphi Corp., alleging that improper Delphi accounting practices and phony inventory sales inflated earnings between 1999 and 2002.
The pension funds say they suffered losses on their Delphi securities, bonds and notes when Delphi management stopped inflating earnings in 2002. At that time, Delphi took action to comply with tighter reporting requirements under the Sarbanes-Oxley Act, the lawsuit says.
Delphi's share price, which was $13.75 on June 24, 2002, gradually fell as Delphi's earnings sank.
The lawsuit notes that Delphi's stock price plunged in March 2005 when management disclosed serious accounting problems and later restated earnings for the affected years.
Between March 1 and March 4, Delphi's share price dropped 30 percent from $6.89 to $4.89.
The plaintiffs are asking for compensatory damages, legal fees and a jury trial, according to the complaint filed in U.S. District Court, Southern District of New York.
The plaintiffs are led by the Teacher's Retirement System of Oklahoma, the Public Employees' Retirement System of Mississippi and two large European employee pension funds. They could not be reached for comment.
Named as defendants are Delphi, two of its trusts and several former and current Delphi senior executives. They include former CEO J.T. Battenberg III, former CFO Allen Dawes, former Controller Paul Free and current Vice Chairman Donald Runkle.
"Our investigation shows troubling participation in the scheme by outside parties, including BBK Inc., Bank One and others," said Sean Coffee, a senior partner with plaintiffs' law firm Bernstein Litowitz Berger & Grossman LLP of New York.
Thousands of Delphi shareholders could be involved because Delphi shares were widely held, he added. Coffee declined to estimate alleged damages.
But Delphi's market capitalization -- which is the number of shares multiplied by the share price -- fell more than $1 billion after Delphi's March announcement that the company would have to restate its financial results.
The lawsuit alleges that senior executives knew about end-of-quarter inventory sales between 1999 and 2001 that artificially boosted Delphi earnings at a time when most suppliers were struggling to deal with vehicle production cuts.
Delphi booked more than $400 million from the transactions. The lawsuit says that Delphi later repurchased the materials.
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