A class action lawsuit was filed in the United States District Court for the Southern District of New York on behalf of all purchasers of securities of Focus Media between September 27, 2007 and November 19, 2007.
The complaint charges Focus Media and some of its officers and directors with violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint alleges that the company failed to disclose and misrepresented material adverse facts which were known to defendants or recklessly disregarded by them. Those include that the company had made numerous acquisitions in its Internet advertising business segment; that these acquisitions had significantly reduced gross margins in the company's Internet advertising business segment; and that these acquisitions had substantially increased the company's operating expenses.
Focus Media operates an out-of-home advertising network in China using audiovisual television displays, based on the number of locations and number of flat-panel television displays in its network.
On November 19, 2007, after the close of the market, a press release issued by the attorneys for the case say Focus Media shocked investors when it announced its third quarter 2007 financial and operational results. The company disclosed that it had consolidated several newly acquired entities during the quarter, which significantly impacted gross margins in the company's Internet advertising business segment, and substantially increased the company's operating expenses. On this news, the company's shares declined US$5.15 per share, or over 9%, to close on November 20, 2007 at US$52.00 per share, on unusually heavy trading volume.
The plaintiff seeks to recover damages on behalf of class members and is represented by the law firm of Schiffrin Barroway Topaz & Kessler which prosecutes class actions in both state and federal courts throughout the country.
