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Twinlab Stock Drops, Hit With Class Action Suit

December 1, 2000

2 Min Read
Twinlab Stock Drops, Hit With Class Action Suit


Twinlab Stock Drops, Hit With Class Action Suit

NEW YORK--Twinlab Corp. didn't have much to be thankful for thisThanksgiving. On Nov. 24, a class action lawsuit for alleged securities fraudwas filed against the company in the U.S. District Court for the EasternDistrict of New York. The suit charges Hauppauge, N.Y.-based Twinlab (NASDAQ:TWLB)and some of its officers and directors with violations of Sections 10(b) and20(a) of the Securities Exchange Act of 1934, as well as Rule 10b-5 promulgatedthereunder. The suit was filed by Wechsler, Harwood, Halebian & Feffer, LLP,on behalf of all stockholders who had purchased stock between April 27, 1999,and Nov. 15, 2000 (known in the suit as the "Class Period"); thecompany faced a similar suit in late 1998 following its acquisition of PRNutrition.

The catalyst for this latest suit began Nov. 15 when Twinlab requested anextension to file its third quarter report with the Securities and ExchangeCommission (SEC), ostensibly because of "inventory variances" at itsUtah facility. When it released its report on Nov. 20, the company disclosedthat it would adjust its inventory down by approximately $16 million for"missing" and "obsolete" inventory. Twinlab also stated thatit was discontinuing the sale of certain product lines, including itsmicroencapsulated herb products, and reducing its projection of herbal sales forthe year ended Dec. 31 as a result of weak demand. Finally, Twinlab reportedthat it had to obtain waivers of breaches of its debt covenants as a result ofits predicament. Following the announcement on Nov. 15, Twinlab stock plummetedby more than 35 percent from the previous day's $5 per share to close at 3 1/4per share.

The class action suit alleges that Twinlab violated federal security laws bymaking "false and misleading" statements in press releases and filingswith the SEC. The complaint listed, among other things, that Twinlab's business,financial condition, earnings and prospects were compromised; that the companyoverstated its inventory through recording nonexistent and obsolete inventory;and that it inflated its reported financial condition and operating costs duringthe Class Period by at least $16 million. The complaint also alleges thatTwinlab continued to promote the company's ability to achieve expected sales,despite experiencing a continued decrease in demand and the"obsolescence" of certain products.

After the suit was filed, Twinlab's stock price continued to drop, closing at1 7/8 on Nov. 28. For additional information, visit www.whhf.comor www.twinlab.com.

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