Investor lawsuit targets Gateway computer company

SAN DIEGO - A shareholder has filed an investor lawsuit against Gateway alleging the computer seller misled investors in the fall about financial statements.

The lawsuit was filed late Thursday on behalf of Houston shareholder James Burton, who is seeking class-action securities status in federal court in San Diego.

The lawsuit claims that Gateway reported false and misleading financial results for the three months ending in September. It also alleges that Gateway failed to record the declining value from its investments in start-up companies and insisted that it was experiencing strong retail demand for PCs, despite obvious signs of weakening sales.

''We deny the allegations and will defend ourselves vigorously,'' said John Spelich, a Gateway spokesman. ''I really can't elaborate beyond that.''

Gateway said it expected a strong fourth quarter when it reported its third quarter results in October.

The financial analysis firm Wit Soundview downgraded Gateway's stock on Nov. 20 from buy to hold, citing the company's reliance on a U.S. consumer market in which PC demand has been slowing and signs of weak cash flow.

Gateway itself warned Nov. 29 that holiday sales were going to be weaker than expected and the announcement sent its stock plummeting 34 percent, to $20.30, on the day of the warning. It closed Friday at $17.50.

The 25-page lawsuit accuses Gateway's founding chairman, Ted Waitt, and chief financial officer, John Todd, of knowing the third-quarter results issued Oct. 12 were misleading.

The lawsuit also alleges that Gateway executives tried to hide information that countered their bullish outlook and shredded documents.

Investor lawsuits have become relatively common as shareholders unhappy over soured investments seek compensation from corporations and their executives.

A group of investors sued Lucent Technologies last month claiming the struggling telecommunications equipment maker misled shareholders in October by reporting inflated earnings for the fiscal fourth quarter.