Update: Cree shares hit by $3 billion lawsuit
The suit names Neal Hunter, current Cree chairman and Eric Hunter s brother, and Cree, Inc. as defendants. Eric Hunter and his wife seek personally to recover damages in excess of $3 billion for unspecified harm resulting from the alleged conduct of the defendants, as well as an injunction against future harassment.
The complaint alleges that the defendants have defamed Eric Hunter by making unspecified false statements about him to members of his family and individuals associated with Cree. It also asserts that beginning in August 1995 the defendants violated employment and federal securities laws and have sought to discourage the plaintiffs from pursuing legal remedies or reporting matters to securities regulators.
As news of the lawsuit broke on Friday June 13, Cree s shares tumbled from an opening price of $21.91 to a low of $15.65 before recovering to $18.10 at the close, down 18.5% on the previous day s closing price.
Late in the day on June 13, Cree released a second statement concerning the affair, which stated that over the last few years, Eric Hunter has brought general and vague allegations of wrongdoing to the attention of Cree. These allegations were referred to independent directors of Cree who, after investigating the matter, found no wrongdoing on the part of Cree or its officers
Chuck Swoboda, Cree s CEO, said, "As a result of the unfortunate filing of this complaint, Cree has received calls inquiring whether it is under SEC investigation. Cree has no knowledge of an SEC investigation of it at this time. The complaint and the damages sought make no sense to us and we intend vigorously to defend the claims against us."
Cree also announced that it will be asking a committee of independent directors to investigate any allegations of wrongdoing and to supervise the handling of the litigation. Previously, the company announced that, based upon a preliminary review, it believes the allegations are without merit and arise in part from personal and family matters.
Eric Hunter s lawyers make statement
Law firm Unti & Lumsden LLC, acting for Eric Hunter, also released a statement in regards to the lawsuit.
The lawsuit alleges, among other things, that beginning in 1995 Cree and Neal Hunter filed false and misleading statements with the Securities and Exchange Commission relating to public stock offerings, omitted material facts from earnings statements, and misled auditors concerning income paid to officers and directors.
The complaint also alleges that Neal Hunter and his brother, Jeff Hunter, then chairman of an affiliated company, C3 (now Charles & Colvard, Ltd), entered into an undisclosed side agreement in connection with a requirements contract. This contract required C3 to accept unlimited shipments of silicon carbide crystals for the manufacture of moissanite gems, thereby artificially increasing Cree s operating income and the per share value of its stock.
The complaint goes on to allege that Cree s chairman and other officials have made personal threats against the plaintiffs and other family members, in an effort to prevent reporting of securities violations to the Securities & Exchange Commission.
Eric Hunter wrote and obtained ten or more of the key patents used by Cree, which he assigned to the company in 1999 in exchange for stock options and employment. The lawsuit also seeks protection and remedies under the Sarbanes-Oxley Act of 2002, which was enacted to protect corporate "whistle-blowers" who report securities violations and other criminal conduct from adverse actions by employers.
