According to a press release dated March 24, 2007, Auditors Deloitte & Touche LLP have agreed to pay $50.5 million (U.S.) as part of a settlement of a class-action lawsuit by shareholders over misleading financial statements at defunct Philip Services Corp. Neil Selinger, a lawyer representing U.S. shareholders, confirmed yesterday that a district court in New York had approved the settlement of the nine-year-old lawsuit against the Toronto-based unit of Deloitte Touche Tohmatsu, former Philip officers and directors and a group of underwriters. Former executives of the Hamilton-based metal recycling giant will pay $18.25 million while underwriters led by U.S.-based Merrill Lynch and Solomon Brothers, now Citigroup Capital Markets, will contribute another $11 million for a total settlement of $79.75 million. Philip's insurer will pay the amount relating to the company's executives.
As summarized by the plaintiff’s co-lead counsel’s web site, the Firm reached a $79.75 million settlement. The auditors, Deloitte & Touche, the officers and directors and the underwriter defendants have settled for $50.5 million, $18.25 million and $11 million respectively. On November 28, 2006, Judge Hellerstein granted preliminary approval of all settlements and the final approval hearing was set for March 19, 2007.
Previously, in May of 1999, the District Court dismissed the Complaint, finding that plaintiffs' choice of the United States as the forum for their claims was entitled to little deference, that Canada was an adequate alternative forum for all of plaintiffs' claims against all defendants, and that the balance of the relevant private and public interest factors favored Canada. On November 12, 1999, plaintiffs filed their brief with the United States Court of Appeals for the Second Circuit, arguing that the district court abused its discretion in dismissing this action in favor of litigation in Canada. A hearing was held before the Second Circuit on March 13, 2000. On November 8, 2002, the Second Circuit reversed and remanded the District Court’s decision, finding that the lower court abused its discretion in dismissing the case in favor of litigation in Canada. The defendants requested that the full appeals court rehear the case. The panel that issued the November 8, 2002 opinion agreed to rehear the appeal and, on April 1, 2002, issued a second opinion again reversing and remanding the District Court’s decision. However, the defendants have conceded the sufficiency of the allegations of certain of plaintiffs’ claims. The court issued an order denying defendants’ motions to dismiss on May 24, 2004. Among these defendants were Deloitte & Touche and defendants Haynes and Knauss. Thereafter, beginning on June 25, 2004, Defendants filed their answers to the Amended Complaint. Initial expert reports were exchanged on February 15, 2006. Rebuttal expert reports were exchanged May 26, 2006 and expert discovery was completed Oct. 20, 2006.
More than 20 class action lawsuits were commenced in the United States District Courts for the Southern District of New York, the Western District of Pennsylvania, and the District of New Jersey. By Order dated June 2, 1998, these actions were transferred to the Southern District of New York by the Judicial Panel on Multidistrict Litigation and consolidated for pre-trial purposes. Thereafter, plaintiffs filed an amended complaint, alleging violations of: (1) Sections 10(b) and 20 of the Exchange Act, 15 U.S.C. 78j(b); 78t; (2) SEC Rule 10b-5, 17 C.F.R. 240.10b-5; and (3) Sections 11, 12(a) and 15 of the Securities Act, 15 U.S.C. 77k, 77l(a)(2), 77o. Specifically, plaintiffs charged Philip and certain of its officers and directors with making materially false and misleading statements concerning its publicly reported revenues, earnings, assets and liabilities. Claims are also asserted against Deloitte & Touche in connection with its audits of Philip in 1995, 1996 and 1997 and the U.S. underwriters in connection with the November 1997 Offering.
The Complaint charges Philip Services and certain of its officers and directors with violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, for artificially inflating its stock price during the Class Period by falsely overstating the amounts of Philip's goodwill and inventory. Specifically, the Complaint charges that the defendants inflated Philip's stock price in order to, among other things, effectuate a $379.5 million common stock offering on November 7, 1997, and finance numerous acquisitions. Philip, which provides industrial environmental remediation and recovery services, is alleged to have overstated the goodwill for companies it acquired in 1993-1996. Philip is also charged with misleading the investment community as to the value of its copper scrap inventory, overstating it by some 50,000 tons -- 100 million pounds. As a result, on or around January 26, 1997, when Philip belatedly disclosed the overvaluation of its goodwill and inventory, its stock immediately collapsed, falling from $13-1/8 to $8-1/4, a 37% one-day drop.
NOTE: As a result of the Company's bankruptcy, Philips Services is no longer named in the litigation.