BlackBerry May Face Class-Action Over Misrepresenting Financials

BlackBerry May Face Class-Action Over Misrepresenting Financials
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BlackBerry investors, who were hoping to sue the company for allegedly misrepresenting the financial success of BB10 devices, have got some good news. Such investors have now got the permission to ask that a court certify a proposed class-action under the Ontario Securities Act, says a report from Financial Post.

Plaintiffs have enough evidence in support

The plaintiffs in the proposed action are capable of producing enough evidence at the trial for winning the case, an Ontario judge said. On Tuesday, Justice Edward Belobaba of the Ontario Supreme Court issued a decision, saying, “I am satisfied on the evidence before me that both the alleged misrepresentation and the public correction have been sufficiently established and that there is a reasonable possibility that the action will be resolved in the plaintiff’s favor at trial.”

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The case dates back to September 20, 2013. The BB10 devices from the company – the touch-screen BlackBerry Z10 and BlackBerry Q10 with a QWERTY keyboard – on which the Canadian firm was relying for the revival of its fortunes, sold very poorly. On January 30, 2013, the company launched those devices.

Thereafter, the company disclosed a $1 billion writedown and slashed its workforce by 40%. Following the move, Blackberry’s stock lost over 15%.

BlackBerry used wrong accounting method

The plaintiffs accused the Canadian firm of making use of improper ‘sell-in’ accounting for several months under which they booked revenue as soon as they shipped BB10 devices to the distributors. Instead, they should have used of ‘sell-through’ accounting in which the company’s book revenue only after the device has reached the end user. Use of ‘sell-in’ accounting method resulted in a misrepresentation of the company’s financial position, which got inflated due to it.

The plaintiffs further argue that in the September 20, 2013 news release, BlackBerry publicly corrected the alleged misrepresentation. The Canadian firm acknowledged that it will only account for Z10 and Q10 sales that were sold to end customers. The judge agreed that the company was making a public correction in admitting to this switch.

Justice Belobaba wrote that “in sum” he agrees with the plaintiffs claims that the company’s announcement regarding the switch it made to sell-through accounting and the associated $1 billion inventory change, when read in context, does suggest that the company made a public correction of the sell-in method of revenue recognition it used in the previous two quarters.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at [email protected]
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