A group of investors yesterday filed a class action lawsuit against MBI Business Centers of Rockville, accusing the firm's management of violating federal securities laws by making "materially false and misleading" statements about the company.
The lawsuit is the latest blow in what has been a difficult year for the computer retailing chain, which last month filed for protection from creditors under Chapter 11 of the federal bankruptcy law while it seeks to reorganize. It sought the protection after defaulting on provisions of its loan from Maryland National Bank and recording second-quarter losses of $13.8 million on sales of $20 million. In the second quarter a year ago, the firm posted a $180,000 profit on sales of $30.8 million.
The suit alleges that MBI Chairman Ronald Watkins, one of its directors, Cyrus Ansary, and three other former senior officers of the firm -- Armen Manoogian, who had been president and chief operating officer; Ralph Wagner, who was executive vice president, and Avner Parnes, the former chief executive officer -- made misleading statements about the growth of the company. "In ignorance of the complete truth of the adverse facts concerning MBI's business and financial condition," the complaint continued, investors "purchased MBI common stock at artificially high prices ... and were damaged thereby."
When MBI filed for Chapter 11 protection in September, its stock -- which had already lost half its value since January -- tumbled $1.56 1/4 a share to 56 1/4 cents.
Damages were not specified, but a lawyer for the plaintiffs said that if the suit is successful the amount would be millions of dollars.
MBI owns and operates 20 retail computer and related-products sales centers. It also operates three centers that sell microcomputers and related products to the federal government. It grew dramatically after the computer boom of the early 1980s, ballooning between 1983 and 1986 from a privately held firm with annual sales of $6 million to the East Coast'a largest company-owned computer chain with sales well in excess of $100 million.
But in the past year and a half, the company's fortunes have fallen just as fast. Last September the firm temporarily lost its lucrative contract with the General Services Administration, which resulted in a quarterly loss of $5.1 million and a 31 percent decline in sales. In March, it laid off 110 of its 575 employes, and closed 12 of its 34 retail outlets.
Throughout MBI's troubles, however, management remained optimistic. In a letter to the firm's stockholders in MBI's 1987 annual report, Watkins called the firm's setbacks temporary and said "the company is being firmly placed on a path to new levels of achievement."