VOIP

PSINet Faces Another Lawsuit

Some weeks you win, some week you lose. A week after the struggling telecommunications firm got 14 class action suits against it dismissed, another suit was filed.

by dc.internet.com Staff [January 2, 2001]

PSINet, Inc. (NASDAQ:PSIX), which managed to have a number of the pending lawsuits against it dismissed on a technicality on December 21, was hit with a new class action suit late Friday afternoon. The complaint, filed in the United States District Court for the Eastern District of Virginia on behalf of all investors who acquired the common stock of PSINet through the company's merger with Metamor Worldwide Inc., charges PSINet and certain of its officers and directors with issuing false and misleading statements concerning the company's business and financial condition.

Specifically, the complaint charges PSINet with violating Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 by overstating PSINet's results of operations and financial condition for the year ended Dec. 31, 1999. Furthermore, PSINet is charged with failing to disclose the incompatibility of the operations of Metamor and the state of the company's true financial position and liquidity.

Additionally, the complaint alleges that PSINet misrepresented their overall revenue growth rate and business prospects, particularly with regard to the company's international webhosting presence. Finally, on November 2, PSINet issued a press release announcing the resignation of its president, a planned dramatic restructuring of the company, and third quarter results well below its prior guidance. As a result of this announcement, the price of PSINet's common stock plummeted by more than 55 percent.

The suit is similar to 14 cases against PSINet recently dismissed without prejudice by Judge Leonie M. Brinkema. In an oral ruling, Brinkema held that the complaints had failed to prove PSINet had made misleading statements to the public through its press releases and public statements. By dismissing the actions without prejudice, the judge allowed the the plaintiffs to amend and revive their lawsuit.

While Brinkema's action allows the plaintiffs to revise their actions against PSINet, she also warned the plaintiffs they had a duty to investigate their claims to determine if they had any factual basis before filing complaints, and that the court would impose sanctions on plaintiffs if they filed amended complaints that did not have an adequate factual basis.

In a 15th class action case, though, Brinkema allowed three counts to proceed to discovery. The counts essentially contain the same claims as those in the dismissed class action suits, but involve statements allegedly made by PSINet in a prospectus, as opposed to public comments in a press release.

—End