Shareholders sue Microsoft over Surface RT writedown

Microsoft shareholders are launching a class action lawsuit against the company, claiming Microsoft and some of its staff violated US federal securities laws by making “false and misleading” statements about the company’s financial performance and its Surface RT tablet.

The class action, launched on Monday in the US’s Massachusetts District Court, alleges that between 18 April and 18 July of 2013, Microsoft and some of its staff at the time “issued materially false and misleading statements regarding the Company’s financial performance and its tablet computer, the Surface RT”.

The action revolves around Microsoft’s 18 July US$900 million writedown on the value of its Surface RT inventory, revealed within the company’s fiscal 2013 Q4 results. The writedown came after the company slashed the prices of the tablet in an effort to entice consumers, and it ate into the company’s earnings. The US$900 million writedown was equivalent to US$0.07 per share.

The day after the results were announced, Microsoft shares fell 11.4%, or US$34 billion.

The complaint (.pdf) names as defendants Microsoft Corp itself, CEO Steve Ballmer, ex-CFO Peter Klein, Corporate Vice President and CAO Frank Brod, as well as employee Tami Reller.

Klein served as CFO until resigning on 7 May, while Reller served as CMO and CFO of Microsoft’s Windows division until 11 July, when she became executive vice president of marketing.

The suit names Microsoft shareholder, Gail Fialkov, as one plaintiff, and it purports to be on behalf of purchasers of Microsoft common stock between 18 April and 18 July of 2013.

Basically, the complaint says that Microsoft, Ballmer, Klein, Brod and Reller knew that the company’s inventory of Surface RT units had lost value, and they failed to inform investors of these details, when in fact they were obligated to.

Thus, those who purchased Microsoft shares between 18 April and 18 July had been misled when they invested - and deserve compensation, the lawsuit says.

More specifically, the suit alleges that the defendants failed to publicly disclose how poorly the Surface RT was selling and failed to publicly disclose that its inventory of Surface RT units had lost value as a consequence of these poor sales.

It alleges that Microsoft’s financial statements for the quarter ending 31 March were “materially false and misleading”.

It also alleges that the defendants knew of “trends, events or uncertainties” associated with the RT that were “reasonably likely” to have a material effect on Microsoft’s future operating results, but failed to mention these in the company’s fiscal 2013 Q3 filings.

Finally, it alleges that Microsoft and co lacked a “reasonable basis” for positive statements they made about the RT during the aforementioned April-July period.

The lawsuit aims to recover unspecified damages on behalf of those who bought Microsoft common stock during the 18 April-18 July period.

Microsoft has so far declined to comment on the lawsuit.

Anyone who wishes to join the class action can apply here.

Pictured: Surface RT via John Bristowe under CC