According to an article dated February 28, 2007, in a unanimous opinion by Chief Judge Dennis G. Jacobs, joined by Circuit Judge John M. Walker Jr. and retired Supreme Court Justice Sandra Day O'Connor (sitting by designation), the Court of Appeals affirmed District Court Judge Miriam Cedarbaum's dismissal of securities fraud claims asserted against Deloitte for failure to plead a primary violation under Central Bank and failure to plead loss causation, among other grounds. The court ruled that an outside auditor must make an actionable misstatement in order to be liable under §10(b), which was not alleged by plaintiffs here, and that assisting in the drafting of a filing is not sufficient to establish §10(b) liability. The court also ruled that the auditor's 'going concern' warning, combined with precipitous adverse changes in the company's financial situation apparent on the face of the financial statements, made it 'unambiguously apparent' that the company faced a risk of bankruptcy, even if the underlying financial information was inaccurate, and demonstrated that the auditor's misstatements did not proximately cause plaintiffs' damages.
According to the docket, on April 6, 2005, the court entered the preliminary approval order in connection with the partial settlement proceedings. A hearing was scheduled to be held before the Court on June 30, 3005 at 10 a.m. According to the Notice of Pendency of Class Action Hearing On Proposed Partial Settlement, a Gross Settlement Fund consisting of $7,300,000 in cash, plus interest, was established. At the hearing, Judge Miriam Goldman Cedarbaum signed the Final Judgment on Partial Settlement pursuant to FRCP 54 (b) of all claims asserted by the Class against certain individual defendants: the former Chief Financial Officer of Warnaco, the former Vice President and General Counsel of Warnaco, and the former Chief Executive Officer and Chairman of Warnaco. Further, on September 22, 2005, the Court entered the Opinion of Judge Cederbaum granting the defendant Deloitte & Touche’s earlier motion to dismiss the Sixth Amended and Supplemental Consolidated Class Action Complaint. On October 24, 2005, the plaintiffs filed a Notice of Appeal from the Judge Cederbaum’s Opinion.
Earlier, on October 14, 2003, a Fourth Amended Complaint was filed, and on March 29, 2004, the Court entered the Order appointing John Lattazio as Lead Plaintiff for the Class and continuing the law firm of Lovell Stewart Halebian LLP as Lead Counsel. On April 19, 2004, a Fifth Amended Complaint was filed, and on July 28, 2004, a Sixth Amended and Supplemental Consolidated Class Action Complaint was filed. On September 24, 2004, defendant Deloitte & Touche LLP filed a motion to dismiss the sixth amended complaint. On January 14, 2005, an Amended Class Action Complaint was filed against Deloitte & Touche.
As reported by the Company’s Form 10-Q For The Quarterly Period Ended October 4, 2003, on August 3, 2001, the District Court consolidated the actions into a single
action, styled In Re The Warnaco Group, Inc. Securities Litigation (II), No. 01
CIV 3346 (MCG), and appointed a lead plaintiff and approved a lead counsel for
the putative class. A consolidated amended complaint was filed against certain
of the Company's current and former officers and directors, which expanded the
Second Class Period to encompass August 16, 2000 to June 8, 2001. The amended
complaint also dropped the Company as a defendant, but added as defendants
certain outside directors. On April 18, 2002, the District Court dismissed the
amended complaint, but granted plaintiffs leave to replead. On June 7, 2002, the
plaintiffs filed a second amended complaint, which again expanded the Second
Class Period to encompass August 15, 2000 to June 8, 2001. On June 24, 2002, the
defendants filed motions to dismiss the second amended complaint. On August 21,
2002, the plaintiffs filed a third amended complaint adding the Company's
current independent auditors as a defendant. On June 2, 2003, the District Court
granted the outside directors' motion to dismiss and dismissed the motion to
dismiss of the other individual defendants.
Between April 20, 2001 and May 31, 2001, five putative class action
complaints against the Company and certain of its officers and directors were
filed in the District Court (the 'Shareholder II Class Action'). The complaints,
on behalf of a putative class of 64 shareholders who purchased the Old Common
Stock between September 29, 2000 and April 18, 2001 (the 'Second Class Period'), allege, among other things, that defendants violated the Exchange Act by artificially inflating the price of the Old Common Stock and failing to disclose negative information during the Second Class Period.
The original complaint alleges, among other things, a failure to divulge promptly certain necessary charges relating to reserves, operating shortfalls, restructuring, changing inventory accounting, and a restatement for prior years. Additionally, it was not until this week that Warnaco revealed an SEC inquiry into "whether there have been any violations of the Securities Exchange Act of 1934 in connection with the preparation and publication of various financial statements and reports." During the Class Period, Warnaco stock lost more than 88% of its value with share price dropping to a low of $0.65 after reaching a Class Period high of $5.93. As a result of this decline in the value of Warnaco shares, investors have lost, in the aggregate, hundreds of millions of dollars.
NOTE: On June 11, 2001, Warnaco, together with 37 affiliated companies (collectively, “Debtors”), filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). By Order of the Bankruptcy Court dated February 16, 2003, approving Debtors’ First Amended Joint
Plan of Reorganization (the “Plan”), the claims of equity holders, including Plaintiffs and all Class Members, were forever discharged as against the Debtors without any recovery.