On October 13, 2006, a motion for summary judgment was filed by the defendants. Later on, a minute Order granting joint motion to stay was filed on May 04, 2007. Lastly, a minute Order denying defendants’ motion for summary judgment and granting plaintiffs’ motion to file supplemental memorandum was entered on February 08, 2008.
According to the docket, on June 20, 2002, the Court entered the Order granted the motion for appointment as lead plaintiffs and his selection of lead counsel. On October 21, 2002, the plaintiffs filed Consolidated Class Action Complaint, and the defendants’ filed a motion to dismiss the consolidated class action complaint. On January 29, 2004, the Court entered the Order denying the defendants’ motion to dismiss the consolidated class action complaint. On July 12, 2004, lead plaintiffs filed a motion to certify the class action. On May 3, 2005, the Court entered the Order granting the motion to certify class action. On January 27, 2006, the Court entered the Order approving the notice of pendency of class action. On October 13, 2006, the defendants filed a Motion for Summary Judgment. Before any ruling on the motion for summary judgment, on April 10, 2007, the plaintiffs filed a Joint Motion to Stay Litigation Pending Mediation. The Court granted the joint motion.
The original Complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, by issuing materially false and misleading statements to the market. Throughout the Class Period, Rhythms portrayed itself as a fast-growing and expanding provider of DSL services and repeatedly represented that it could continue to expand its
broadband network throughout the United States and reassured investors that it was financially able to continue this expansion. As alleged in the Complaint, defendants' statements issued throughout the Class Period were materially false and misleading when made as they failed to disclose the following adverse facts which were then known to defendants or recklessly disregarded by them: (i) that Rhythms lacked the financial resources necessary to execute its business plan of a full national network expansion; (ii) that the Company's efforts to scale back its expansion plans were not meeting with success as the Company was unable to generate the necessary financing; (iii) that Rhythms was not well-funded or well-positioned to continue its growth, as the Company's expenses, including its ongoing debt payment obligations, were far outpacing its revenues and rapidly depleting the Company's cash reserves; (iv) that the Company did not have
adequate cash reserves and was not sufficiently "stable" and "financially
strong" that it would be able to fund Rhythms' operational needs into the first
quarter of 2002, as defendants repeatedly promised investors -- defendants were not even able to keep Rhythms running though 2001, as it had earlier guaranteed; and (v) that without the influx of additional capital, Rhythms would be forced to seek bankruptcy protection, which would render Rhythms common stock worthless. While in posession of the true facts about Rhythms and its business, the Individual Defendants and other Rhythms insiders collectively sold 600,000 shares of Rhythms common stock for gross proceeds in excess of $ 16 million - of which over $ 12.6 million alone was received by defendant Hapka - and the Company raised hundreds of millions of dollars in preferred stock sales and debt issuances.
NOTE: On August 1, 2001, Rhythms filed for bankruptcy protection and is therefore not named as defendant in this action.
On December 05, 2008, a Preliminary Order For Notice And Hearing In Connection With Settlement Proceedings was filed with the court. On April 05, 2009, an Order and Final Judgment was granted by the court.
On April 03, 2009, an order and final judgment was entered by the judge in this case granting attorneys fees and expenses.