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Bears Bash BearingPoint after Default Ruling

BearingPoint's (BE) share price tumbled nearly 9% on Sept. 27, after news that a New York court found it in default of a debt issue because it failed to provide timely reports.

The McLean (Va.) technology services company said late Sept. 26 that the State Supreme Court for New York County found it in default under an agreement related to 2.75% Series B Convertible Subordinated Debentures that come due in 2024.

The court made its decision as a result of BearingPoint's failure to provide Securities and Exchange Commission periodic reports to the trustee, who is the person responsible for managing the debt payments. Now BearingPoint is delaying the release of its 2005 Form 10-K filing beyond Sept. 30, citing "uncertainties created by this decision."

BearingPoint is also appealing the court decision. "We respectfully but strongly disagree," said Harry You, Chief Executive Officer of BearingPoint, in a press release. "The new uncertainties and risks created by this lawsuit are unacceptable."

The court determined that the amount of damages to the debt holders will be decided in a later trial. Neither the trustee nor the court have asked for an acceleration of BearingPoint's debt due in 2024.

After the news the stock plunged nearly 9% to $7.72 per share in early trading on the New York Stock Exchange. Standard & Poor's downgraded the stock to sell from hold. Needham & Co. moved to hold from buy, noting that investors should remain on the sidelines until this legal issue is resolved.

"Before the uncertainty created by the recent court decision and the issues it has raised, we were on track," Yoo said in the press release. He announced preliminary financial results for 2005, including gross revenue of around $3.40 billion, representing a 1% growth rate over 2004. The company's net loss will be in the range of $650 million to $720 million, amid challenges such as accounting costs, compensation expenses and a money-losing contract with Hawaiian Telecommunications.

Bearing Point's relatively new CEO may be having some second thought about leaving his former job: CFO at the software giant Oracle (ORCL).

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