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EDS faces legal action from shareholders

Lawyers representing shareholders in Electronic Data Systems have filed a class-action lawsuit against the company, alleging that...

Lawyers representing shareholders in Electronic Data Systems have filed a class-action lawsuit against the company,...

alleging that it artificially inflated its stock price with misleading financial reporting statements.

New York law firm Bernstein Litowitz Berger & Grossmann, which represents the shareholders in the case, has retained Ron Zahn, a certified public accountant and fraud investigator.

Zahn is looking into EDS's handling of what the company recently called "problem contracts".

In May, EDS reported a quarterly net loss of $126m, blaming it on the problem contracts, and a $334m pretax loss stemming from difficulties with the multibillion-dollar Navy/Marine Corps intranet program.

Zahn said he was also investigating internal EDS communications made public in May that characterised the company's deployment plan for the troubled contract as a "scorched-earth seat rollout" policy.

The complaint filed earlier this week stems from an announcement made by EDS last September that it expected its third-quarter 2002 earnings to fall short of the company's prior guidance by approximately 80%.

A week later, securities analysts discovered that EDS had not disclosed certain financial obligations related to the sale of "put" contracts on its own stock, which would require EDS to pay $225m. As a result, the price of EDS's stock tumbled, and shareholders lost about $11.8bn.

Dan Verton writes for Computerworld

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