In a March 2004 conference call, Dana Corp. CFO Robert Richter assured analysts that rising steel prices would have no impact on earnings. Their enthusiastic response helped drive up Dana's share price 5 percent the next week.
Two and a half years later, Richter is gone and Dana is in Chapter 11. And a securities-fraud complaint filed last week in federal court alleges that Dana entered into secret agreements with vendors to hide price increases and inflate earnings.
Shareholders allege in the suit, filed in U.S. District Court in Toledo, Ohio, that Dana CEO Mike Burns, Richter and other executives caused Dana to issue false financial statements in 2004 and 2005.
According to the suit, Richter told analysts in the 2004 conference call that the Dana executives would "hold our guidance where it is, in spite of whatever we see" in the steel market.
Shareholders, including several union pension trusts, first sued Dana and the executives in October, alleging securities fraud after Dana announced it would restate its finances.
Troubled companies such as Dana are routinely sued by disgruntled shareholders after stock prices drop. But the latest complaint, filed Tuesday, Aug. 15, is notable for the depth and breadth of its allegations.
Dana spokesman Todd Romain says it is company policy not to respond to such complaints.
The latest suit alleges that for several quarters, Burns and Richter touted the effectiveness of "Dana's cost-cutting programs and lean manufacturing processes." The executives contended that "these programs were helping the company profitably weather the increasing raw material prices imposed upon Dana by its vendors," the suit says.