Celestica Inc was ordered by a U.S. appeals court to face a shareholder lawsuit accusing the Canadian electronics company of securities fraud for misleading investors about its financial health and restructuring costs.
A panel of the 2nd U.S. Circuit Court of Appeals in New York on Thursday reversed an October 2010 lower court ruling dismissing the lawsuit, which was led by four pension funds.
The three-judge panel said the investors sufficiently alleged that the defendants, including former Celestica Chief Executive Stephen Delaney and former Chief Financial Officer Anthony Puppi, knew they were overstating the Toronto-based company's financial health in 2007.
Plaintiffs have pleaded with particularity that Delaney and Puppi were culpable participants in the alleged fraud because they personally executed and oversaw Celestica's restructuring, were informed of the resulting inventory buildup, and made misstatements to the public regarding the company's inventory management, the appeals court said.
Celestica did not immediately return requests for a comment. Joseph Fonti, a lawyer for the investors, did not immediately return a call seeking a comment.
According to the complaint, Celestica understated the costs of a 2005 restructuring by as much as 68 percent, understated operating costs, and overstated earnings and revenue, causing its share price to be inflated.
The complaint sought damages on behalf of investors who owned company stock between January 27, 2005 and January 30, 2007, when the company disclosed higher restructuring costs and a disappointing quarterly outlook.
The following day, Celestica shares fell more than 23 percent and Craig Muhlhauser, who had replaced Delaney as chief executive two months earlier, called the outlook an absolute disaster. Muhlhauser remains chief executive.
The lead plaintiffs are the New Orleans Employees Retirement System and three Ontario funds: Millwright Regional Council of Ontario Pension Trust Fund, Carpenter's Local 27 Benefit Trust Fund; and Dry Wall Acoustic Lathing and Insulation Local 675 Pension Fund.
In afternoon trading in Toronto, Celestica shares were down 8 cents at C$7.49.
The case is New Orleans Employees Retirement System et al v. Celestica Inc et al, 2nd U.S. Circuit Court of Appeals, No. 10-4702.