Cbeyond Vows to Defend Itself in Lawsuit

IP services CLEC Cbeyond Inc. said this week it will “vigorously defend” itself and its chairman against a lawsuit alleging insider trading.

New Jersey-based law firm Gardy & Notis LLP filed the class-action lawsuit on behalf of an unnamed plaintiff on May 6; Cbeyond responded on May 13.

The suit charges Cbeyond and James Geiger, the company’s founder, chairman, president and CEO, with insider trading that started on Nov. 1, 2007. Gardy & Notis allege the following: “[T]he defendants made specific misstatements designed to hide the fact that Cbeyond was recording a higher churn rate for its services, which permitted certain of Cbeyond’s officers and directors to engage in insider sales of $39 million of Cbeyond stock at artificially inflated prices. Shortly thereafter, Cbeyond was forced to admit on Feb. 21, 2007 that it elected to make certain operational changes that caused its churn rate to climb even higher, contrary to its prior representations. Cbeyond’s stock price dropped 20 percent on this shocking news.”

The lawsuit was filed in U.S. District Court for the Northern District of Georgia, which handles a number of tech-focused civil cases.

Cbeyond on May 1 reported a 63 percent drop in first-quarter profit. The company earned $1 million on $80.5 million in sales. It was hurt partly by income tax costs.

Shares of the Georgia-based provider were up 15 cents during late-afternoon trading on the Nasdaq, at $17.15.

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