A class-action lawsuit has been filed against Engineering Animation, Inc., 2321 N. Loop Drive, alleging that the upstart software company illegally tampered with its stock prices.

The suit, filed at the federal district court for southern Iowa, was brought forward by Abraham Schreiber, of New York, who asserts EAI engaged in purposely fraudulent accounting practices in an attempt to falsely drive up its prices on the NASDAQ stock exchange and fool its shareholders.

The complaint also states that EAI purposely did not report projected losses as early as it should have in order to keep its stock prices from dropping.

The suit is proposed to be a class-action suit on the behalf of all EAI shareholders who bought stock between Feb. 19, 1998 and Feb. 17, 1999.

Barry French, executive director of corporate communications for EAI, said the suit has absolutely no merit.

“They’re basically asserting that EAI engaged in securities fraud,” French said. “They are trying to say we artificially inflated prices in our stock through inappropriate accounting. That’s complete garbage — there’s absolutely nothing we did wrong.”

French denied that EAI’s accounting left anything to be desired.

“They’re alleging that we used improper accounting, but all we did was adjust accounting figures,” he said. “We only had to do that because the SEC [Security Exchange Commission] had changed the guidelines that companies like ours are supposed to follow.”

Larry Curtis, local attorney and adjunct assistant professor of business law, said companies like EAI must follow strict regulations when reporting earnings.

“Any stock that is public like EAI is regulated by the SEC,” he said. “They are pretty well monitored and have to file monthly changes in projections.”

However, most companies like EAI rely on their accountants to tell them what to expect for earnings and how to report them, Curtis said.

“They probably were a little aggressive, and the SEC probably had them redo their reporting,” he said.

Curtis said he was not sure exactly how much merit the suit had.

“The standard in that area is whether they did it willfully,” he said. “If that can be proved, then we’ve got a completely different story. What I’ve gotten out of the case so far is that EAI thinks these guys are just looking for people to sue.”

French said Bill Lerach, the lawyer who is handling the case for Schreiber, has a proven track record of attacking technological companies such as EAI.

“They take on companies they think they can put a lot of pressure on, and they try to force them to settle,” French said.

Lerach has made a name for himself taking on software companies and forcing them to settle out of court. According to a story published by Upsite, 61 of the last 67 companies Lerach has taken on have settled out of court. That list includes companies such as Apple Computer and Intel.

“There are people who do nothing but buy small amounts of ownership and look for little things to pick holes at,” Curtis said. “And then they just hope that they’ll get paid for their nuisance value. Those suits usually get settled.”

Despite the serious claims against the company, French said EAI is not overly worried about the suit.

“We’re not going to let this distract us,” he said. “You look at some of the companies that have had this done to them, and they’ve gone on just fine.”

French would not speculate on whether EAI would be forced to follow the lead of many companies before it and settle out of court.

“We’ll do whatever is in the interest of our shareholders and our company,” he said.