Ikanos Failure to Disclose Defects in Semiconductors Prior to $120 Million Secondary Offering

In a recent blog posting on The D&O Diary, Kevin LaCroix discusses the potential implications that the Second Circuit reversal of the lower court’s dismissal of the securities suit involving Ikanos Communications could have on the lawsuits that have been recently filed against Facebook.

Prior to completing a $120 million secondary offering in March of 2006, the plaintiffs in the lawsuit allege that Ikanos was having quality issues with their semiconductor chips in January of 2006.  As the offering date got closer, the defect problems became more pronounced and allegedly the issues were discussed by the Company’s Board.

The plaintiffs have alleged that the magnitude of the defect issue was not adequately disclosed in the Offering Documents.  Ultimately the Company decided to replace all of the units that had been sold of certain defective chips.

The Second Circuit determined that the circuit court should have: “addressed the question of whether, in failing to disclose the scope of the defect issue with which Ikanos was then grappling, defendants concealed a ‘known trend or uncertainty that {Ikanos] reasonably expected would have a material unfavorable impact on revenues or income” as was required by Item 303 under Regulation S-K.

Attorneys handling lawsuits filed against Facebook for similar failure to disclose issues relating to the Company’s recent Initial Public Offering (IPO) will no doubt be following this case very carefully.

For further information about the recent decision, please read Kevin LaCroix’s posting entitled:  Second Circuit: Failure to Disclose “Known Uncertainties” States Securities Claim

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