Palm, which is looking to raise cash by selling shares controlled by its largest investor, Elevation Partners, has sought to "clarify" statements made by company director Roger McNamee last Thursday. During an interview with Bloomberg, McNamee said that "not one" current iPhone owner will be using the device after their two-year contract expires, instead switching to Palm's upcoming Pre smartphone.

He also commented that web surfing with the Pre is "several times faster" than the iPhone and predicted that competitors Apple and Resarch in Motion will "run out of gas way before we [do]." Mr. McNamee is also a partner with Elevation.

Given Securities and Exchange Commission (SEC) rules governing what companies and their representatives can say about operations during cash-raising periods, Palm has issued a document in which it backed away from Mr. McNamee's statements. Meanwhile, according to the San Jose Mercury News, a law firm that specializes in securities fraud has been contacted by institutional investors.

"It's a very unusual thing that happened here," said Mark Molumphy, a partner with Cotchett, Pitre & McCarthy. "This is definitely something that people are taking a close look at."

Palm, McNamee, and the SEC all declined to comment, although two other securities lawyers told the Mercury news that Palm will likely emerge from the situation unscathed. "The likelihood of serious SEC scrutiny is rather unlikely," said one. "Imprudence is not illegal," commented another.

While Palm rode the PDA wave to roaring sales success during the mid-to-late 1990s, the company has struggled in recent years to find similar footing during the smartphone era. Research in Motion's BlackBerry and Apple's iPhone have diminished Palm's standing, forcing the company to place big bets on the Pre, which was unveiled during the Consumer Electronics Show in January. Pre runs a new operating system called webOS, which offers a touch-based interface that's similar to the competition.