Eric Hunter, one of the founders of Cree ( CREE), filed a lawsuit against the company and his brother, Chairman F. Neal Hunter, alleging among other things that they filed false statements with the Securities and Exchange Commission and left material information out of earnings reports.

The lawsuit, citing events going back to 1995, accuses Cree and Neal Hunter of providing "false and misleading statements" to the SEC related to public stock offerings. The suit also contends that the company and its chairman omitted facts from earnings statements and misled auditors concerning income paid to officers and directors.

Based upon a preliminary review, the semiconductor company believes that the allegations have no merit and "arise in part from personal and family matters." Cree said it plans to defend itself vigorously.

Shareholders were worried though, as Cree dropped $4.64, or 21%, to $17.57. More than 18 million shares had traded by midday, about nine times the normal volume for an entire session.

The lawsuit also alleges that Neal Hunter and other Cree officials "made personal threats" against Eric Hunter, his wife and fellow plaintiff Jocelyn Hunter and other family members, in a bid to stop them from reporting securities violations to the SEC.

Eric Hunter is Cree's former CEO and the company described him as a current part-time employee.

Cree added that the complaint accuses the company and its chairman of "making unspecified false statements" about Eric Hunter to members of his family and individuals associated with Cree. Eric Hunter and his wife are seeking to recover damages in excess of $3 billion.

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