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Barrett Faces Class Action Lawsuit on Alleged Legal Violation - Analyst Blog


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Several securities litigation firms, including The Wagner Firm, Kahn Swick & Foti, LLC and Wolf Popper LLP have filed a class action lawsuit against Barrett Business Services Inc. ( BBSI ) and some of its officers. The lawsuit concerns possible claims on behalf of the shareholders of Barrett pertaining to the probable infringement of federal securities laws.

The lawsuit will represent a class consisting of the buyers of Barrett securities between Feb 12, 2013 and Oct 29, 2014 (the class period).

Allegations

The investigation pertains to some specific statements made by the company concerning its financial results. The law firms will probe into the matter to ascertain if the company intentionally misled investors about the financial situation, operational performance and business prospects of the company.

The firms allege that Barrett breached the Securities Exchange Act of 1934 as during the class period, the company failed to divulge that it had accrued its self-insured workers' compensation reserves, which resulted in an overstatement of the company's earnings.

Moreover, the complaint claims that the company's internal and financial controls were inadequate and its statements were materially false and misleading at all pertinent times.

The Facts

On Sep 16, an analyst published a report, accusing Barrett of understating reserves and claiming that the company "may be required to recognize a material charge to substantially increase its loss reserves." Reacting to the report, Barrett's stock price tumbled over 15% later that day.

The concerns of the analyst were validated when Barrett reported a substantial third-quarter net loss, driven by a substantial increase in workers' compensation reserves. This contradicted Barrett's prior representation that its workers' compensation reserves were "reasonable and objective" based on its operational history.

Per the complaint which followed the company's third-quarter 2014 earnings on Oct 28, an $80 million pre-tax increase in workers' compensation reserves in effect obliterated the company's pre-tax earnings for the past five years, and drove its third-quarter net loss of $37.8 million. On this news, Barrett's stock plummeted nearly 59% on unusually heavy volume, to close at $18.28 per share on Oct 29, 2014.

Barrett kept investors in the dark as it concealed material information, and their investments consequently witnessed heavy losses. This class action lawsuit seeks to recoup damages against the company on behalf of the defrauded investors.

Barrett presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the outsourcing industry include Convergys Corp. ( CVG ), Paychex, Inc. ( PAYX ) and Vistaprint N.V. ( VPRT ), each holding a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Business , Stocks
Referenced Symbols: BBSI , PAYX ,



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