According to a press release dated July 23, 2003, a federal appeals court has upheld Bethesda-based USEC Inc.'s win in a consolidated securities fraud class action brought by shareholders who claimed the company painted too rosy a picture in the prospectus for its July 1998 initial public offering. The claims against USEC, the country's only supplier of enriched uranium for commercial power plants, are barred because they were filed more than a year after the investors should have realized the statements in the prospectus were false, the 4th U.S. Circuit Court of Appeals held. … The court remanded the case for consideration of USEC's motion for sanctions against the investors, but expressly declined to decide whether such sanctions are appropriate in this case. Among other things, the investors alleged that USEC knew in advance of the 1998 IPO that a process touted in the prospectus, which theoretically would slash production costs, was not technologically feasible. Evidence of that foreknowledge emerged at a congressional hearing in April 2000, just six months before the first of 10 class action lawsuits was filed in October 2000, the investors claimed. However, USEC announced it was abandoning the technology -- a laser-based method of isotope separation known as AVLIS -- in June 1999, well over a year before the first action was filed. "Any question about the viability of AVLIS was put to rest with the announcement of its abandonment in the press release," the 4th Circuit wrote.
As reported by the Company’s FORM 10-Q for the quarter ended June 30, 2003, in March 2002, the U.S. District Court for the District of Maryland dismissed the lawsuit. In April 2002, the plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Fourth Circuit. On July 24, 2003, the Court of Appeals affirmed the District Court’s dismissal of the lawsuit.
On June 21, 2001, U.S. District Judge Joseph H. McKinley Jr. granted the motion to transfer the case from the U.S. District Court for the Western District of Kentucky to the District of Maryland for further adjudication
Between October and December of 2000, several federal securities lawsuits were and later consolidated. The consolidated complaint named as defendants USEC, two of USEC's officers, and the seven underwriters involved in the initial public offering of common stock. The complaint generally alleged that certain statements in the registration statement and prospectus for the July 28, 1998 initial public offering were materially false and misleading because they misrepresented and failed to disclose certain adverse material facts, risks and uncertainties. The plaintiffs were seeking compensatory damages.
The original complaint charges that defendants violated Sections 11, 12(a)(2) and 15 of the of the Securities Act of 1933, by filing with the SEC, and disseminating a Prospectus in connection with USEC's IPO Registration Statement on July 23, 1998, which contained materially false and misleading statements of facts and omissions regarding the Company and its business. For example, as alleged in the complaint, defendants failed to adequately disclose the true risks and uncertainties that the uranium enrichment industry was subject to, and downplayed the likelihood that a long-term contract with the Russian Federation would turn unprofitable. Shortly following the IPO, the Company was buying enriched uranium from the Russian Federation at well-above market prices and reselling it for a loss. Moreover, the complaint alleges, the Company failed to reveal the true facts relating to an enrichment technology USEC was developing ("AVLIS") that was highly touted in the Prospectus and critical to its profitability, but which was abandoned shortly after the IPO. As these undisclosed risks materialized, the Company's stock declined from its $14.25 per share IPO price to $7.375 on December 3, 1999 (a 48% decline) -- the day after USEC announced that it would continue its money-losing contract with the Russian Federation.
