Class action lawsuits were filed in 2007 over alleged fraudulent accounting practices

Shuffle Master has agreed to settle one of two groups of class-action shareholder lawsuits for $13 million.

Three lawsuits were filed in June 2007 in U.S. District Court in Las Vegas claiming Shuffle Master and certain officers had engaged in fraudulent accounting practices, including the improper recognition of revenue from intercompany inventory transfers.

The shareholders alleged these practices inflated the company’s fourth quarter 2006 earnings by nearly 50 percent and its full-year 2006 earnings by more than 30 percent.

The lawsuits claimed Shuffle Master had misled investors about measures taken to improve the company’s internal accounting controls after the company had acknowledged an internal control weakness in connection with a restatement of its financial statements a year earlier. Shuffle Master, which makes card shufflers and other equipment for casinos, was also accused of misleading investors about the success of the Las Vegas-based supplier’s acquisition and integration of Australian gaming company Stargames.

The defendants in the suits are the company, the chief executive at the time, Mark Yoseloff, and the chief financial officer at the time, Richard Baldwin.

Attorneys for the lead plaintiffs, the City of Tulsa Municipal Employees Retirement Plan and the Oklahoma Firefighters Pension and Retirement System, said the settlement covers potentially thousands of purchasers of Shuffle Master common stock between Feb. 1, 2006, and March 12, 2007.

Shuffle Master insiders who purchased stock during this period are not eligible to receive payments from the settlement.

A May 4 hearing has been set in federal court in Las Vegas on whether the settlement should be approved.

Three more lawsuits are pending in federal and state courts in Las Vegas over the same issues. In these “derivative lawsuits,” as they’re known, shareholders are seeking to have the company sue Yoseloff, former President Paul Meyer, Baldwin and current and former members of the board of directors for damages. These suits accuse the defendants of breach of fiduciary duty and claim their actions harmed the company and its shareholders.