(CN) - CPI Corp. is faces a securities class action in the U.S.D.C. Eastern District of Missouri from investors claiming the company sold shares at artificially inflated prices from April 20, 2010 to Dec. 21, 2011.
The St. Louis-based company, according to its website, is the leading portrait studio operator in North America with approximately 3,100 locations.
Lead plaintiff Ibew 98 Local Pension Fund says CPI violated federal securities laws by concealing the company's deteriorating state, particularly that "CPI's stock was not a 'good investment' and the Company's stock buy-back was intended solely to project false confidence in the Company's prospects."
On Dec. 22, 2011, CPI announced results for the fiscal quarter ended Nov. 12, 2011 reporting a net loss of $7.25 million and a decline in net sales of 11 per cent to $95 million.
The low results caused CPI to fail the leverage ratio test for its revolving credit facility, leading the company to obtain an amendment to its credit agreement. CPI will stop paying a dividend as a result, the suit says.
CPI stock traded as high as $31.91 per share on May 12, 2010 but plummeted to $1.98 per share on Dec. 22, 2011 after the results announcement.
CPI's top executives including CEO Renato Cataldo allegedly used their positions to control CPI's quarterly reports and press releases, keeping investors in the dark regarding the true state of the company.
"As a result of defendants' false statements, CPI stock traded at artificially inflated levels during the Class Period. However, after the above revelations seeped into the market, the Company's shares were hammered by massive sales, sending them down nearly 94% from their Class Period high," the complaint states.
The fund is represented by Lynn R. Johnson, John M. Parisi, and Douglas R. Bradley of Shamberg, Johnson & Bergman CHTD. in Kansas City, Darren J. Robbins, David C. Walton, and James I. Jaconette of Robbins Geller Rudman & Dowd LLP in San Diego, and Steven F. Marino of Marino, Conroy & Coyle LLC in Philadelphia.