AFC Enterprises, Inc. - Securities Class Action

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Copyright (c) 2001
Stanford Law School

AFC Enterprises, Inc. Conclusion: According to the Order and Final Judgment entered on September 29, 2005, the settlement is approved. The court awarded fees and reimbursement of expenses. The civil case is terminated.

In a press release dated April 23, 2005, AFC Enterprises will pay shareholders $ 15 million to settle consolidated lawsuits over financial restatements that two years ago sent the company into a tailspin. The owner of the Popeyes Chicken & Biscuits fast-food chain said Friday the cash payment is its first response to multiple suits filed after it announced plans to restate results for 2000, 2001 and part of 2002. The company, which still faces other restatement-related lawsuits, said it is not admitting any guilt through the settlement. The deal awaits federal court approval.

As reported by the Form 10-K/A for the fiscal year ended December 26, 2004, on December 29, 2004, the Court entered an Order granting in part and denying in part the Defendants’ Motions to Dismiss the Complaint. The Court dismissed all insider trading claims; dismissed Section 10(b) and Rule 10b-5 claims against certain current and former officers and directors. Because Plaintiffs declined to re-plead their allegations, the foregoing claims have been dismissed with prejudice. Subsequent to the Court’s December 29, 2004 Order, Defendants AFC and the former CFO filed a Motion to Dismiss the Section 10(b) and Rule 10b-5 claims of the named Plaintiffs for lack of standing (jurisdiction), as both remaining Plaintiffs continue to hold the AFC stock made the subject of their claims and, therefore, given the recovery and continuing rise of the AFC stock price, Plaintiffs can prove no damages under Section 10(b) or Rule 10b-5. Also, pending are certain motions filed by the outside directors for reconsideration of portions of the December 29, 2004 Order. Discovery commenced on February 23, 2005.

On March 25, 2003, plaintiffs filed the first of eight securities class action lawsuits in the United States District Court for the Northern District of Georgia against AFC and several of its current and former directors and officers. By order dated May 21, 2003, the district court consolidated the eight lawsuits into one consolidated action. On January 26, 2004, the plaintiffs filed a Consolidated Amended Class Action Complaint (the “Consolidated Complaint”) on behalf of a putative class of persons who purchased or otherwise acquired AFC stock between March 2, 2001 and March 24, 2003. In the Consolidated Complaint, plaintiffs allege that the registration statement filed in connection with AFC’s March 2001 initial public offering (“IPO”) contained false and misleading statements in violation of Sections 11 and 15 of the Securities Act of 1933 (“1933 Act”). The defendants to the 1933 Act claims include AFC, certain of AFC’s current and former directors and officers, an institutional shareholder of AFC, and the underwriters of AFC’s IPO. Plaintiffs also allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“1934 Act”) and Rule 10b-5 promulgated thereunder. The plaintiffs’ 1934 Act allegations are pled against AFC, certain current and former directors and officers of AFC, and two institutional shareholders. The plaintiffs also allege violations of Section 20A of the 1934 Act against certain current and former directors and officers and two institutional shareholders based upon alleged stock sales. The Consolidated Complaint seeks certification as a class action, compensatory damages, pre-judgment and post-judgment interest, attorney’s fees and costs, an accounting of the proceeds of certain defendants’ alleged stock sales, disgorgement of bonuses and trading profits by AFC’s CEO and former CFO, injunctive relief, including the imposition of a constructive trust on certain defendants’ alleged insider trading proceeds, and other relief.

The original Complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between March 2, 2001 and March 24, 2003, thereby artificially inflating the price of AFC securities. According to the complaint, the Company's class period statements were materially false and misleading because the press releases and SEC filings issued during the Class Period failed to reveal that AFC inflated its operating results by:(1) improperly accounting for the sale of corporate-owned stores to franchisees; (2) improperly accounting for the value of certain long-lived assets; (3) understating advertising costs; and (4) improperly accounting for inventory at the Company's Seattle Coffee Company division. As a result of the Company's fraudulent accounting, AFC's financial statements published during the Class Period were not prepared in accordance with Generally Accepted Accounting Principles and, therefore, it was not true that the Company's financial statements were a "fair presentation" of the Company's financial position. Indeed, by announcing its intention to restate its financial statements, AFC has admitted that its prior financial statements were materially false and misleading when issued. On March 24, 2003, after the market closed, AFC shocked the market by announcing that it would be restating its financial statements for fiscal year 2001 and the first three quarters of 2002. The Company also reported that it was examining whether or not its financial statements for fiscal year 2000 should be restated. In response to this negative announcement the price of AFC common stock dropped by over 20% on extremely heavy trading volume. AFC insiders privy to the Company's fraudulent accounting practices did not share investors' losses. In a December 2001 public offering, AFC insiders unloaded 7,000,000 shares of their holdings at $23 per share. Indeed, during the Class Period, defendants and other Company insiders cashed out at prices as high as $34 per share, reaping profits of over $30 million.

INDUSTRY CLASSIFICATION:
SIC Code: 5812
Sector: Services
Industry: Restaurants

COMPANY/ISSUER NAME:	AFC Enterprises, Inc.
COMPANY/ISSUER TICKER:	AFCE
COMPANY WEBSITE:	http://www.afc-online.com

FIRST IDENTIFIED COMPLAINT IN THE DATABASE

James Nugent , et al. v. AFC Enterprises, Inc., et al.

COURT: N.D. Georgia	DOCKET NUMBER: 03-CV-0817
JUDGE NAME: Hon. Thomas W. Thrash
DATE FILED: 03/25/2003	SOURCE: Business Wires
CLASS PERIOD START: 03/02/2001	CLASS PERIOD END: 03/24/2003
TYPE OF COMPLAINT: Unamended/Unconsolidated
PLAINTIFF FIRMS IN THIS OR SIMILAR CASE:
Abbey Gardy, LLP 212 East 39th Street, New York, NY, 10016 (voice) 212.889.3700, (fax) , info@abbeygardy.com Bernstein Liebhard & Lifshitz LLP (New York, NY) 10 E. 40th Street, 22nd Floor, New York, NY, 10016 (voice) 800.217.1522, (fax) , info@bernlieb.com Faruqi & Faruqi LLP 320 East 39th Street, New York, NY, 10016 (voice) 212.983.9330, (fax) 212.983.9331, Nfaruqi@faruqilaw.com Goodkind Labaton Rudoff & Sucharow LLP 100 Park Avenue, New York, NY, 10017 (voice) 212.907.0700, (fax) 212.818.0477, info@glrslaw.com Hoffman & Edelson 45 West Court Street, Doylestown, PA, 18901-4223 (voice) 215.230.8043, (fax) , Landskroner - Grieco, Ltd. 1360 West 9th St., Suite 200, Cleveland, OH, 44113-1904ina (voice) 866.522.9500, (fax) , jack@landskronerlaw.com Milberg Weiss Bershad Hynes & Lerach LLP (New York, NY) One Pennsylvania Plaza, New York, NY, 10119-1065 (voice) 212.594.5300, (fax) , Much Shelist Freed Denenberg Ament & Rubenstein, PC , Chicago, IL, (voice) 800-470-6824, (fax) 312-621-1750, Terry D. Goldberg & Associates , , , (voice) 215.354.9100, (fax) , no1piguy@aol.com Wolf Haldenstein Adler Freeman & Herz LLP 270 Madison Avenue, New York, NY, 10016 (voice) 212.545.4600, (fax) 212.686.0114, newyork@whafh.com _____________________________________________ TOTAL NUMBER OF PLAINTIFF FIRMS: 10

DOCUMENTS FOR THE FIRST IDENTIFIED COMPLAINT
Class Action Complaint for Violation of Federal Securities Laws - Jury Trial Demanded
Type: Complaint		Date on the document: 03/25/2003
Consolidated Civil Action
Type: Other		Date on the document: 05/22/2003

REFERENCE COMPLAINT

In Re: AFC Enterprises, Inc. Securities Litigation

COURT: N.D. Georgia	DOCKET NUMBER: 03-CV-0817
JUDGE NAME: Hon. Thomas W. Thrash
DATE FILED: 06/16/2005	SOURCE: Business Wires
CLASS PERIOD START: 03/02/2001	CLASS PERIOD END: 03/24/2003
TYPE OF COMPLAINT: Third Amended and Consolidated
PLAINTIFF FIRMS NAMED IN COMPLAINT:
Chitwood Harley Harnes LLP 2300 Promenade II; 1230 Peachtree Street, N.E., Atlanta, GA, 30309 (voice) (888) 873-3999, (fax) (404) 876-4476, attorney@chitwoodlaw.com Lerach Coughlin Stoia Geller Rudman & Robbins LLP (Boca Raton) 197 South Federal Highway, Suite 200, Boca Raton, FL, 33432 (voice) 561.750.3000, (fax) 56.750.3364, info@lerachlaw.com Milberg Weiss Bershad & Schulman LLP (Boca Raton) 5355 Town Center Road - Suite 900, Boca Raton, FL, 33486 (voice) 561.361.5000, (fax) 561.367.8400, _____________________________________________ TOTAL NUMBER OF PLAINTIFF FIRMS: 3

DOCUMENTS FOR THE REFERENCE COMPLAINT
Consolidated Amended Class Action Complaint
Type: Complaint		Date on the document: 01/26/2004
Agreement of Settlement
Type: Settlement		Date on the document: 06/16/2005
Third Consolidated Amended Class Action Complaint
Type: Complaint		Date on the document: 06/16/2005
Order and Final Judgment
Type: Order		Date on the document: 09/28/2005
U.S. District Court Civil Docket
Type: Docket		Date on the document: 09/30/2005

OTHER DOCUMENTS
Class Action For Violations Of Federal Securities Laws
Case Name and/or Number: Cruz
Type: Complaint		Date on the document: 03/27/2003
Class Action Complaint for Violations of Federal Securities Laws
Case Name and/or Number: Alicia Reed , et al. v. AFC Enterprises, Inc., et al.
Type: Complaint		Date on the document: 04/30/2003
U.S. District Court Civil Docket
Case Name and/or Number: Cruz, et al. v. AFC Enterprises, Inc., et al.
Type: Docket		Date on the document: 05/22/2003

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