Celestica, a Canadian electronics manufacturer, must face shareholder claims that it misled them about the costs of a corporate restructuring, a U.S. appeals court ruled.
The U.S. Court of Appeals for the 2nd Circuit in New York on Thursday reversed a lower court’s dismissal of the fraud lawsuit. Celestica investors, represented by a group with the $256 million New Orleans City Employees’ Retirement System as a lead plaintiff, sued the company and its former CEO, Stephen Delaney, and former CFO, Anthony Puppi, in 2007.
The ruling reverses a 2010 decision by U.S. District Court Judge George Daniels in New York dismissing the suit.
The three-judge appeals court panel ruled that the shareholders alleged sufficient facts to support that the defendants knew they were misstating Celestica’s earnings and financial prospects.
“The particular allegations that Delaney and Puppi were specifically informed, and had reason to know, of the growing inventory stockpile in Celestica’s Mexican and American facilities are sufficient to establish the individual defendants’ scienter,” the panel said in the ruling. “Moreover, those allegations are sufficient to establish corporate scienter on behalf of Celestica.”
Celestica’s misstatements artificially inflated the company’s share price, causing investors to lose money when the true costs associated with the restructuring became public, according to the shareholders’ lawsuit. The group seeks damages on behalf of all those who bought the Toronto-based company’s stock from Jan. 27, 2005, to Jan. 30, 2007.
Celestica representatives didn’t immediately return a voice mail message to its media contact line seeking comment on the appeals court ruling.