The past few months have been unkind to lottery firm GTECH. Last month, the National Lottery Commission dropped Camelot's bid to run the National Lottery, mainly due to concerns over its technical supplier, GTECH. The company followed that news with an announcement last week of a series of changes to both its business structure and focus after taking a thorough value assessment of its operations. Those changes included staff reductions, office closings, and numerous efforts to reduce costs. Further bad news followed.
The company was hit another blow thanks to law firm Stull, Stull & Brody, which filed a class action lawsuit on August 25 against GTECH on behalf of individuals who bought GTECH stock between April 11, 2000 and July 25, 2000. The suit was filed in the Rhode Island U.S. District Court, and names GTECH, former chairman and CEO William Y. O'Connor and former chairman W. Bruce Turner as defendants.
The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing an series of material misrepresentations and omissions to the market between April 25, 2000 and July 25, 2000. For example, as alleged in the complaint, the defendants failed to disclose (i) that GTECH was suffering from an inability to close significant contracts, including contracts in Columbia, Italy, Portugal and Asia; (ii) that GTECH's inability to close contracts would negatively impact revenues by as much as $48 million dollars; (iii) that the Company's projections of success were lacking in a reasonable basis at all times because of defendants' inability to close the contracts GTECH highlighted during the Class Period; and (iv) that costs at GTECH were climbing at an alarming rate which in turn had significantly reduced earnings.