RealTime IT News

PSINet Fraud Lawsuit Resurfaces

A class-action lawsuit dismissed in December reared its head on PSINet again Tuesday.

The lawsuit, originally filed in November 2000 in the U.S. District Court for the Eastern District of Virginia, charges the provider of global e-commerce infrastructure with fraud under the Securities Act of 1934.

In December 2000, Judge Leonie Brinkema ruled that the 15 complainants had failed to allege any facts that would support their allegations.

However, the complainants stood united Tuesday as wielding re-written charges against the Ashburn, Va.-based company and its executives.

The revised claims cover certain PSINet investors who hold common stocks, bonds and convertible preferred stock, according to Steven J. Toll, esquire, who is representing the complainants.

"We put together a different-looking complaint with a different theory in large measure," Toll said. "We put forth enough evidence to convince the judge that the lawsuit has merit."

Allegations include that the company made false statements about its cash flow and business plans and that it was negligent and reckless in in March 2000, which lost $1.2 billion in the third quarter.

At the time of the original filing in November, William L. Schrader, PSINet CEO, stated that "the company intended to defend itself and its officers and directors vigorously against these claims, and we mean it. We are confident in our expectation that the company and its named officers and directors will demonstrate that the claims made by various plaintiffs' lawyers have absolutely no merit."

Calls to a company spokesperson today for additional comment were not returned as of press time.

No doubt, the company is in turmoil. PSINet earlier Tuesday revealed plans to sell its e-commerce data communications unit, PSINet Transactions, to raise $300 million in much-needed capital. Earlier this month the company sold its Inter.net Global subsidiary, for an undisclosed sum.

At press time, the company's stock had fallen 9/32, or 28 percent, to 23/32 on the Nasdaq. The stock, whose 52-week high is $55-3/4, has lost 99 percent of its value over the past year.

The complainants may very well settle out of court for less than they anticipated, Geoffrey Stewart, esquire, with Washington, D.C.-based law firm Jones, Day, Ravis and Pogue, told internetnews.com. "PSINet's stock value has declined substantially," he said. "Usually, these cases are settled by a mix of cash from insurance combined with stock from the defendant. With the decline in stock price, this case will be difficult to structure."