According to Gateway, Inc.'s SEC 10-Q filing for the quarterly period ended September 30, 2003, the parties and insurance carriers reached a $10.25 million settlement in which the Company denied all allegations and did not admit any liability. The settlement was funded entirely by the Company's insurance carriers and was approved by the court on September 9, 2002.
Additionally, the SEC filing said that on July 16, 2001, the complaints were consolidated and amended to allege among other things that the defendants misrepresented Gateway's financial performance in securities filings and in statements to the public. On September 13, 2001, defendants filed a motion to dismiss. On February 1, 2002, the court entered an order granting the defendants' motion to dismiss, but allowed the plaintiffs to file an amended complaint.
The original complaint charges Gateway and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Specifically, on October 12, 2000, Gateway reported its Q3 2000 financial results. The complaint alleges that these results were materially false and misleading as defendants failed to write down Gateway's impaired assets in order to inflate Gateway's financial results. Thereafter, defendants issued a series of allegedly false and misleading statements concerning the company's business and its prospects for Q4 2000. The complaint charges that defendants actually knew that Gateway's business was faltering, that is Q3 results were false, and that its Q4 results would show no growth and would devastate Gateway's share price. Despite this actual knowledge, defendants claimed that Gateway would achieve EPS growth of almost 50% in Q4 and even went so far as to claim that Gateway shares were significantly undervalued. On November 29, 2000, defendants admitted Gateway would not achieve Q4 growth of almost 50% but instead would report potential losses and absolutely no growth at all. Defendants' release also revealed that Gateway would take a $200 million charge for impairment in Q4. In reality, most of this write-down should have been taken in Q3. The market reaction to the news was devastating. In minutes, Gateway lost several billion dollars of market capitalization resulting in losses to thousands of Gateway shareholders, as Gateway's stock price declined from $31 to $19 in two days, on huge volume of 23.2 million shares.