According to Segue Software, Inc.’s Form 10–Q For The Quarterly Period Ended September 30, 2001, on November 8, 1999 each of the defendants filed a motion to dismiss the amended complaint for failure to state a cause of action, and on July 26, 2000, the United States District Court for the District of Massachusetts granted Segue's Motion to Dismiss the putative securities class action litigation brought against the above three defendants. The dismissal was entered "with prejudice." The plaintiffs appealed the decision to the First Circuit, and, in December 2000 while the appeal was still pending, the parties and Segue's insurers reached an agreement in principle to settle the matter for an agreed upon settlement amount. Segue's Directors' and Officers' insurance contributed a substantial portion of such settlement amount. The settlement received final approval from both the shareholders and the trial court.
The original Complaint alleges, among other things, that Defendants engaged in a plan and scheme and common course of conduct to inflate the market price of Segue common stock by misstating and/or concealing material information concerning the Company's financial and operating condition and future outlook. Pursuant thereto, Plaintiffs allege that Defendants participated in, caused, or approved various public statements and releases issued by, or on behalf of, Segue which reported favorable financial results when the Complaint alleges these reports were materially misleading. Plaintiffs allege that Defendants were motivated, in part, to inflate artificially the price of Segue common stock in order to complete two acquisitions at a discount during the Class Period by using Segue common stock as currency and in order to meet analysis' expectations. A principal part of Defendants' alleged scheme included improperly reporting revenue, including the improper recording of income and earnings and failing to take a provision for returns and exchanges on certain sales, in violation of Segue's revenue recognition policies, Generally Accepted Accounting Principles (GAAP) and the federal securities laws and Securities Exchange Commission (SEC) regulations concerning fair reporting. Allegedly, it was not until April 12, 1999, that Segue announced that it was revising its previously announced results for the fourth quarter and year ended December 31, 1998 and for the period ended September 30, 1998, as a result of certain sales practices during the third and fourth quarters of 1998 that did not comply with the Company's policies. The Complaint further alleges that Plaintiff and other Class members purchased the common stock of Segue during the Class Period at artificially inflated prices as a result of Defendants' dissemination of false and misleading statements regarding Segue in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder.