Twinlab Hit with Class Action Lawsuit

NEW YORK--Twinlab Corp. didn't have much to be thankful for this Thanksgiving. On Nov. 24, a class action lawsuit for alleged securities fraud was filed against the company in the U.S. District Court for the Eastern District of New York. The suit charges Twinlab (NASDAQ:TWLB) and certain of its officers and directors with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Rule 10b-5 promulgated thereunder. The suit was filed by Wechsler, Harwood, Halebian & Feffer, LLP, on behalf of all stockholders who had purchased stock between April 27, 1999, and Nov. 15, 2000 (known in the suit as the "Class Period"); the company faced a similar suit in late 1998 following its acquisition of PR Nutrition.

The catalyst for this latest suit began Nov. 15, when Twinlab announced that it was unable to file its Form 10-Q for the quarter ended Sept. 20 in a timely manner to the Securities and Exchange Commission (SEC). At this time, Twinlab also disclosed that it would adjust its inventory down by approximately $16 million for "missing" and "obsolete" inventory. The company also stated that it was discontinuing the sale of certain staple product lines and reducing its projection of herbal sales for the year ended Dec. 31 as a result of weak demand. Finally, Twinlab reported that it had to obtain waivers of breaches of its debt covenants as a result of its predicament. Following the announcement Twinlab stock plummeted by more than 35 percent from the previous day's $5 per share to close at $3.25 per share.

The class action suit alleges that Twinlab violated federal security laws by making "false and misleading" statements in press releases and filings with the SEC. The complaint listed, among other things, that Twinlab's business, financial condition, earnings and prospects were compromised; that the company overstated its inventory through recording nonexistent and obsolete inventory; and that it inflated its reported financial condition and operating costs during the Class Period by at least $16 million. The complaint also alleges that Twinlab continued to promote the company's ability to achieve expected sales, despite experiencing a continued decrease in demand and the "obsolescence" of certain products. Three additional law firms have since filed concurrent class action suits.

After the suit was filed, Twinlab's stock price continued to drop, closing at 2 1/8 on Dec. 4. For additional information, visit www.whhf.com or www.twinlab.com.