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Shareholders sue Majesco over financial forecast

The fortunes of US publisher Majesco have taken yet another turn for the worse following news that shareholders have launched four class-action lawsuits against the company.

The fortunes of US publisher Majesco have taken yet another turn for the worse following news that shareholders have launched four class-action lawsuits against the company.

They are suing over statements made by CEO Carl Yankowski in June which read: "We are entering the second half of our fiscal year with confidence that we are well positioned to achieve our objectives for full year 2005."

"We remain focused on global growth, both organic and otherwise."

But poor sales of key titles Psychonauts and Advent Rising meant that the publisher slashed its forecasts just a month later, predicting annual net revenue of between USD 120-125 million and not USD 175-185 million as previously stated. Majesco's profit forecast also dropped from USD 16-18 million in operating income to an operating loss of USD 16-19 million.

As a result Yankowski resigned and Majesco's share price fell 47 per cent. It has only recovered slightly in the weeks following the forecast revision to around USD 3.40.

Now lawyers from firms Chitwood Harley Hanes, Brian M. Felgoise, Weiss Bershad & Schulman and Schatz & Nobel have launched lawsuits on behalf of shareholders claiming that Majesco overestimated earnings. In order to win the suits, lawyers must show that executives did not believe they could sell through all of the units shipped, but were attempting to achieve short term gains whilst knowing that revisions would be necessary. Yankowski and ex-chief financial officer (now chief accounting officer) Jan E. Chasen are named as co-defendants in several of the suits.

The complaint issued by Schatz & Noble reads: "Majesco violated federal securities laws by issuing misleading public statements. Specifically, defendants represented that the Company's revenue and income would continue to grow over its 2004 and first half of 2005 results in its fiscal year 2005."

"Unbeknownst to investors, Majesco's strong reported growth resulted from the Company having inundated its retailers with product in excess of demand. As defendants knew, Majesco's strong growth was unsustainable because retailers would either return the unsold products or would sell off excess inventory instead of ordering new products."

"In addition, two of Majesco's new video game titles flopped. Defendants engaged in the alleged wrongdoing to inflate the stock price in Majesco's planned secondary offering."

It's thought that more lawsuits against Majesco are likely to be announced over the coming days.

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Ellie Gibson

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Ellie spent nearly a decade working at Eurogamer, specialising in hard-hitting executive interviews and nob jokes. These days she does a comedy show and podcast. She pops back now and again to write the odd article and steal our biscuits.