ENDURING a shareholder lawsuit.

AMERICAN BANK NOTE Holographics Inc.'s future looked grand in the summer of 1998. Customers such as Visa, MasterCard, and the U.S. government were using the company's holograms on cards and documents to guard against fraud. Sales appeared to be booming, and the company had just gone public, raising nearly $116 million.

But not everything was as it seemed. Figures used for the IPO, it turned out, had been significantly misstated and profits were well below what the company had reported. The misdeeds, not surprisingly, triggered a raft of shareholder lawsuits, with investors accusing the Elmsford, NY-based company of fraud.

Inheriting this mess was Kenneth Traub. Hired as CFO shortly after the company went public, Traul was quickly named CEO following the ouster of the previous chief executive. His charge: to repair the company's reputation, and chart a course for a profitable future.

"It's bad enough for any company to commit fraud," says the 40-year-old executive. "But it's worse if your business is about fraud prevention."

In launching his rehabilitation mission, Traub quickly realized he wouldn't get far until the shareholders' lawsuits were cleared up. "The exposure was huge," he recalls. The lawsuits "were all people saw and it really gave the impression that the company was in bad, bad shape."

After a year or so of negotiations, a class action settlement was reached. The deal, which included a $12.5 million insurance payment to plaintiffs as well as the issuance of company stock and warrants, came at a hefty price. But relegating the lawsuits to the past was critical for the future. "The sooner you can focus on the business, the better," says Traub. "Litigation is not a value creation exercise."