Prior to Lead Plaintiffs filing their responses to the D&O Defendants' Motion for Summary Judgment and the Court's ruling on the SmarTalk Partners Defendants' Motion for Summary Judgment, the parties agreed to settle the litigation. Pursuant to the terms of the proposed settlement, which the Court preliminarily approved on July 31, 2003, a Settlement Fund consisting of $11,100,000 cash has been established for the benefit of the Class. On April 7, 2004, the Court entered the Final Order and Judgment signed by Judge Edmund A. Sargus, Jr. approving the settlement.
Earlier, Plaintiffs and PwC agreed to settle the case against PwC. Pursuant to the terms of the proposed partial settlement, a Settlement Fund consisting of $15,000,000 cash has been established for the benefit of the Class. By Order of the Court dated November 14, 2001, the proposed partial settlement with PwC was preliminarily approved. The Court issued an Order on May 10, 2002 granting final approval of this partial settlement with PwC.
On February 22, 1999, Plaintiffs filed a Consolidated and Amended Complaint. The Amended Complaint does not name SmarTalk as a defendant due to the Company filing for Bankruptcy protection on January 22, 1999. On December 17, 1999 the Individual Defendants and PwC filed motions to dismiss Plaintiffs' Amended Complaint. On November 1, 2000 the Court issued an Order denying all of Defendants' motions to dismiss the Amended Complaint except for PwC's. The case continued against all of the Individual Defendants. On May 22, 2001 Plaintiffs filed a Notice of Appeal with the United States Court of Appeals for the Sixth Circuit to appeal the District Court's dismissal of the claims against PwC.
The case was first filed in the U.S. District Court for the Eastern District of New York. On September 28, 1998, the Court entered the Order transferring the case to the U.S. District Court for the Southern District of Ohio.
The original complaint alleges that defendants, while amassing over $50 million in proceeds from insider sales of the SmarTalk stock, concealed from the investing public the fact that they had been committing gross violations of the federal securities laws, including misleading the public by claiming that SmarTalk was expanding its business opportunities through favorable acquisitions and distribution agreements with other companies and that the Company was generating "record" financial results. The complaint alleges that SmarTalk failed to disclose to the investing public that: a) they artificially recognized the sales figures announced during the Class Period; b) they were recognizing revenues prematurely and improperly in violation of GAAP; c) SmarTalk's distributors were not selling prepaid cards at the levels represented; d) SmarTalk's management was encountering severe difficulties in integrating the companies acquired; and e) defendants were not controlling costs. On August 10, 1998, SmarTalk announced that it was postponing the release of its quarterly results due to SmarTalk's auditors questioning SmarTalk's accounting methods. This news caused SmarTalk shares to drop over 60 percent on extraordinary volume.