The Complaint names GM, certain of its current and former officers and directors, and several underwriting investment banks as defendants and alleges that the Registration Statement and Prospectus issued by GM in connection with the IPO were false, misleading and in violation of the Securities Act of 1933. Specifically, the Complaint alleges, in connection with the IPO, and in order to assuage concerns that GM was predicting revenue based on production rather than actual sales, GM falsely assured investors that it was actively managing its production by monitoring its dealer inventory levels. Additionally, GM assured investors that in 2011 it would improve inventory management, which would improve average transaction price.
In July 2011, reports began to surface that GM had engaged in an extraordinary inventory build-up. In particular, an article published by Bloomberg on July 5, 2011 revealed that GM may have been unloading excessive inventory on dealers, a practice known as "channel stuffing,"in order to create the false impression that GM was recovering and sales and revenues were rising.
Indeed, on July 1, 2011, GM admitted on an investor conference call that it had substantially exceeded inventory targets. An article appearing on Barron' on July 5, 2011 quotes Don Johnson, the VP of GM' U.S. sales operations, who stated on an investor call that "[r]ight now we are at 122 day supply on full-size pickups. And this is slightly above where we would like to be. I acknowledge that our target is between 100 and 110 day supply but I think it's important that people realize why we are there and what we may do about it."Thus, GM acknowledged that its target was above the 100 vehicle figure that industry experts considered excessive, and moreover GM exceeded even its own excessive target.
During the three months following the Bloomberg and Barron' articles, GM' share price fell from more than $31.00 to below $20.00, far below the IPO price of $33.00, and continues to trade around $20.00 today.
