Summary of Case:
A securities class action has been filed against Internap Network Services Corp. (Ticker: INAP) ("Internap" or the "Company") on behalf of all securities purchasers from March 28, 2007 through March 18, 2008 (Class Period) in the United States District Court for the Northern District of Georgia. The deadline to file for lead plaintiff is January 13, 2009.
The complaint alleges that on March 28, 2007, Internap issued a press release announcing its successful integration of Vitalstream Advertising and Media Services into their network. Although the Company knew they were having problems with integrating many of their networks, the Company made several claims throughout the Class Period that the integration had significantly improved IP connectivity and performance for customers using their services.
On November 6, 2007, Internap announced their financial results for the third quarter of 2007. The Company posted record revenues of $60.9 million, a record adjusted EBITDA of $10.9 million, a GAAP Net Income of $1.8 million, and the addition of 149 net new customers, all attributed to growth in CDN services. However, Internap hid from the public that their customers were experiencing sever network outages and that several hundred customers had requested account credits.
On February 28, 2008, Internap issued a press release announcing the Company's financial results for the fourth quarter and full-year of 2007. The Company posted record revenues of $235.9 million for the full-year 2007, and in the fourth quarter 2007 a GMP net income of $6.3 million and the addition of 259 net new customers. Defendants posted inflated earnings despite the fact that they knew the Company had lost customers due to network outages caused by problems in their network integration, and several hundred customers having requested credits to their accounts. Although defendants touted their successes in integrating the CDN network, record revenues and strong growth, they failed to mention the network problems being experienced by their customers. Defendants offered no indication that they might need to restate earnings due to service outages, or that any network problems even took place.
Accordingly, defendants' materially false and misleading statements and omissions throughout the Class Period created the impression that the Company had "sharply increased" its customer base and had successfully integrated their network to provide a better service to their clients, resulting in "record revenues." On Tuesday, March 18, 2008, Internap surprised the market by disclosing in a press release that: (i) the Company would delay filing their Form 10-K Annual Report for the fourth quarter and fill-year 2007; (ii) the Company would refund several hundred customers a total of $1-$2 million previously reported and recognized as revenues; (iii) the Company's reduction in revenues were due to services outages in the months of August, September, and October, which caused customers to request their accounts be credited; (iv) $400,000 previously identified as unrealized gain within stockholder's equity should have been included as accretion of interest income in the 2007 statement of operations; and (v) the Company should have recorded an additional amount of less than $100,000 as accrued interest. The Company also disclosed that its recent customer count was inaccurate.
As a result of these disclosures, shares of Internap fell to a 52-week low. The Company's stock price dropped from $6.12 per share on March 18, 2008, to close at $4.09 per share on March 19, 2008, representing a 33 percent single-day decline, on unusually heavy trading volume of 3,959,100 shares.
