METRO HIT WITH CLASS ACTION SUIT

Metro Global Media has been hit with a class action suit charging the adult video and entertainment giant with making false and misleading financial reporting statements between September 1996 and September 1999.

The suit charges Metro with inflating its securities prices because of its dependence on common stock to raise money and pay debts, using its stock "as currency, including to raise over $2 million" and retire debts of $230,000 in fiscal 1998, according to the formal complain obtained by Business Wire Tuesday and filed by Elaine Bourkoff of Rabin & Peckell, a Manhattan corporate law firm representing plaintiffs in the case.

The suit attributes the alleged inflated reporting to Metro's "failure to properly record embedded interest related to its convertible preferred stock…improper amortization of its film library, and improper classification of a related party transaction, all in violation of generally accepted accounting principles," according to the formal complaint.

Metro spokesman Greg Alves tells AVN On The Net the suit is springing from one single shareholder. "The bottom line is, when you restate your earnings, certain law firms are looking for that. And they look for one stockholder to file a suit. This one shareholder who's started (the suit) bought about 13,000 shares when the price was six dollars (per share). He sold them soon afterward, I don't know the price yet, but he's the one putting this suit together."

Alves says he will have further comment after Metro has had a chance to study the entire complaint.

The suit was filed in U.S. District Court, Rhode Island, on behalf of "all persons or entities who purchased or…acquired (Metro securities) during (that period)," according to Business Wire.

Metro's stock trading on the high-tech NASDAQ stock composite was suspended in September pending completed filing of its 401(k). The class action suit says the accounting mistakes cited "required a restatement of its financial statements for fiscal years 1996, 1997, and 1998, which would reduce the earnings reported for these years." The suit charges that Metro's artificially inflated securities damaged plaintiffs financially, although damages sought have not yet been disclosed.

Metro's NASDAQ suspension led New Frontier Media, Inc., another adult entertainment producer, to create a NASDAQ compliance committee in-house to perform a kind of quality-control on that firm's compliance with the exchange's trading and disclosure rules. New Frontier, however, continues trading on the NASDAQ exchange.