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SAN FRANCISCO — A law firm sued Oracle chief executive Larry Ellison on Friday, alleging the world’s second-richest man engaged in insider trading when he dumped a large amount of company stock prior to a dismal earnings report. 

Oracle spokeswoman Jennifer Glass said the federal suit brought by Milberg Weiss Bershad Hynes & Lerach on behalf of a small pension fund is “entirely without merit and will be defended vigorously.” 

The suit was filed in U.S. District Court in San Francisco.  

It alleges that Ellison unlawfully dumped at $32 per share nearly $900 million worth of shares, a fraction of his holdings, during the fiscal third-quarter, which ended Feb. 28.  

Ellison is accused of taking advantage of insider information that included knowledge that the software giant would not meet third-quarter expectations. 

The Redwood Shores company warned March 1 that third-quarter earnings would fall below forecasts because of a sudden slowdown in sales caused by the country’s slumping economy.  

The suit, however, said Oracle knew but concealed that it would experience costly outlays to fix what the lawyers called “massive technical problems” with its 11iSuite software. 

Preliminary results for the third quarter estimated earnings will be 10 cents a share.  

Analysts surveyed by First Call/Thomson Financial were expecting 12 cents a share for Oracle stock. 

On Friday, Oracle shares dropped $1.13 to $16.38 on the Nasdaq Stock Market, nearly half their value when Ellison sold shares and well below a 52-week high of $46.47. 

All told, the executive sold 29.1 million shares in January, generating $894.8 million. 

Ellison reaped about $681 million in profits by exercising stock options that were expiring in August.  

Ellison told the Securities and Exchange Commission he exercised options to purchase 22.2 million shares for about 22.5 cents each.  

He then sold the shares in the open market for as much as $32 each. Those were his first share sales in five years. 

Ellison also sold about 7 million shares that he already owned, according to an SEC report. 

Ellison owns about 1.4 billion common Oracle shares plus other options. 

The suit is Local 144 Nursing Home Pension Fund vs. Oracle Corp., C010988.