NAPCO Security Technologies ($NSSC) Investor Settlement

NAPCO Security Technologies has reached a settlement to resolve investor claims that it and its top executives inflated the company's inventory value and net income for three consecutive quarters of fiscal 2023, enabling its CEO and CFO to sell stock at artificially inflated prices before a restatement caused shares to collapse.

Outline:

NAPCO reported quarterly financial results showing record net income, driven in part by inventory that had not been adjusted downward despite sharply falling component costs. CEO Richard Soloway and CFO Kevin Buchel allegedly knew inventory values were stale, yet left inventory costing as the only area of NAPCO's books not updated to quarterly review. On August 18, 2023, NAPCO disclosed it would restate its financials for the first three quarters of fiscal 2023, admitting inventory had been overstated and cost of goods sold understated, and its stock fell more than 45% in a single trading day. The case has now reached a settlement.

Timeline:

• November 7, 2022: NAPCO reports "record-breaking" 1Q23 results (net income $6.4 million); Class Period begins.

• November 15, 2022: Soloway and Buchel sell over 1.3 million shares combined pursuant to a Form 144 filing, netting roughly $33 million.

• February 6, 2023: NAPCO reports 2Q23 results, calling $8.4 million net income "the largest quarterly net income in the Company's history."

• February 13–15, 2023: Soloway and Buchel sell additional shares in a secondary offering and related transactions, together netting roughly $76 million more.

• May 8, 2023: NAPCO reports 3Q23 net income of $10.8 million, again calling it a company record.

• August 18, 2023: NAPCO announces it will restate its 1Q23–3Q23 financials, disclosing that inventory was overstated and cost of goods sold understated, resulting in net income overstatements as high as 115%.

• August 21, 2023: NAPCO's stock closes at $21.11 per share, down more than 45% from $38.41 the prior trading day.

• September 1, 2023: NAPCO files amended quarterly reports (Forms 10-Q/A) confirming the restated, lower financial results.

• August 25, 2026: Parties settle.

Background:

NAPCO Security Technologies designs and manufactures electronic security devices, including access control, intrusion and fire alarm systems, and video surveillance products, from its headquarters in Amityville, New York. During fiscal 2023, the company reported a string of what it called "record-breaking" quarterly results, driven by net income figures that consistently exceeded analyst expectations.

According to the complaint, those results were inflated because NAPCO's inventory — built up during pandemic-era supply chain shortages — was never properly adjusted downward even after component costs fell substantially, in some cases by as much as 99%.

CFO Kevin Buchel personally approved component purchases at a fraction of the unit costs still being carried in inventory, while NAPCO's accounting procedures left inventory costing as the sole area of its books still reviewed only annually rather than quarterly. CEO Richard Soloway had expressed a desire to "soft land" the company's inflated inventory to lower levels gradually, rather than take an immediate write-down.

During this same period, Soloway and Buchel sold approximately 48.5% and 45.5% of their respective personal NAPCO holdings, for combined proceeds of roughly $108 million, timed shortly after each quarter's inflated results were announced. None of these sales were made under Rule 10b5-1 trading plans.

On August 18, 2023, NAPCO disclosed it would restate its financials for the first three quarters of fiscal 2023, admitting that inventory had been overstated and cost of goods sold understated by amounts that overstated net income by as much as 115% in a single quarter.

The stock fell more than 45% the next trading day. The case has now reached a tentative settlement, subject to a signed settlement agreement and court approval.

What Can Investors Expect Now?

NAPCO Security Technologies has reached a settlement to resolve investor claims that it and its top executives inflated the company's inventory value and net income for three consecutive quarters of fiscal 2023, enabling its CEO and CFO to sell stock at artificially inflated prices before a restatement caused shares to collapse.

If you were damaged due to this situation, you can check if you are eligible and get more details in the FAQ section once the settlement is finalized.