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Heelys Inc. Case 08/27/2007

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Lawsuit Overview

Company
Heelys
Security
NASDAQ: HLYS

Case Name
Heelys Inc. Case 08/27/2007
Type of Lawsuit
Shareholder Class Action
Class Period Begin
Class Period End
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Summary

Heelys Inc. Case 08/27/2007: UPDATE

Heelys Inc. announced it reached a proposed settlement of a class action lawsuit over its initial public offering. Pending court approval, the proposed $7.5 million settlement includes all owners of Heelys common stock as of July 16, according to court documents. Heelys said the company and certain officers and directors deny wrongdoing but decided to settle because continuing to fight the suits would be protracted and expensive.

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<p align= justify >According to a press release dated August 27, 2007, the complaint charges Heelys and certain of its officers and directors with violations of the Securities Act of 1933. Heelys designs, markets and distributes wheeled footwear.</p>
<p align= justify > </p>
<p align= justify >Specifically, the complaint alleges that the Registration Statement used by defendants in connection with the IPO was misleading in that it represented that Heelys had a viable, well-established business plan and that its tremendous revenue growth and resulting profits were based on sound business and stable sales practices. Moreover, the Registration Statement failed to disclose the staggering number of injuries suffered by Heelys’ users in the months leading up to the IPO. The Company and certain of its senior executives and directors sold $155 million worth of Heelys stock at $21 per share in the IPO.</p>
<p align= justify > </p>
<p align= justify >The complaint further alleges that on or around August 8, 2007, following the issuance of product safety warnings by the Consumer Product Safety Commission and other industry safety groups that affected the shoe’s marketability, defendants were forced to significantly downgrade the Company’s revenue and earnings guidance for the second half of 2007, admitting that retailers were sitting on huge unsold inventory and refusing to place additional orders. On this news, the Company’s stock price fell 45% in a single trading session on more than six-times the average daily trading volume over the preceding month.</p>