[Update Aug. 14: My story, running in the Aug. 14 print edition of The Seattle Times, on the lawsuit is here.]
A class action lawsuit has been filed against Microsoft on behalf of shareholders who say they were misled by Microsoft executives about how well the Surface RT tablets were selling.
The lawsuit alleges that Microsoft and its officers including CEO Steve Ballmer, former CFO Peter Klein, CAO Frank Brod, and former Windows marketing head Tami Reller, violated federal securities laws by issuing false and misleading statements regarding the financial performance of the Surface RT.
The suit was filed on behalf of those who purchased Microsoft stock between April 18 and July 18.
Among other allegations, the lawsuit says Microsoft had already amassed a large excess of Surface RT inventory by the end of the March 31 quarter but had not told investors, thereby violating generally accepted accounting principles and SEC rules and regulations.
“What Defendants knew, but failed to disclose to investors … was that Microsoft’s foray into the tablet market was an unmitigated disaster, which left it with a large accumulation of excess, over-valued Surface RT inventory,” the lawsuit says.
On July 18, Microsoft announced that it was taking a $900 million write-down for Surface RT inventory adjustments in the following quarter, ending June 30. But “in truth…the value of such inventory was materially impaired by March 31, 2013,” the lawsuit says.
On that July news, Microsoft stock plunged more than 11 percent.
The suit, filed by a number of law firms including San Diego-based Robbins Geller Rudman & Dowd, was on behalf of plaintiff Gail Fialkov and others in her class. It was filed in the U.S. District Court for the District of Massachusetts, which has jurisdiction over the U.S. Securities and Exchange Commission.
Microsoft declined to comment on the suit.
Microsoft has never disclosed how many Surface tablets — including the Surface RT — it has sold. In a document filed in July with the SEC, Microsoft said it made $853 million in the sales of its Surface tablets in the past fiscal year — not even as much as it had to write down as part of its price cutting on Surface RT tablets. (Earlier in July, Microsoft had slashed the prices of the Surface RT by $150.)