According to a press release on the lead counsel’s web site, by order dated August 29, 2006, Judge Vanessa D. Gilmore, of the United States District Court for the Southern District of Texas, denied Ernst & Young’s motion to dismiss in the action In re Seitel, Inc. Securities Litigation, which is pending in federal court in Houston, Texas. After the action was filed, Seitel went into bankruptcy and plaintiff entered into a settlement with the company and the management defendants. After the settlement, Ernst & Young, the only remaining defendant, moved to dismiss the amended complaint that had been filed only against it.
On July 29, 2005, the Settlement Fairness Hearing was held, and the Court issued an Order and Final Judgment that same day granting final approval of the Settlement Fund in the amount of $5,250,000. The case is continuing against Ernst &Young LLP. On July 27, 2005 Lead Plaintiff filed a Second Amended Complaint against E&Y and on September 27, 2005, E&Y filed a Motion to Dismiss this complaint, which Lead Plaintiff opposed on November 14, 2005.
According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2005, eleven lawsuits were consolidated by an Order entered August 7, 2002, under Cause No. 02-1566, styled In re Seitel, Inc. Securities Litigation, in the United States District Court for the Southern District of Texas. The Court appointed a lead plaintiff and lead counsel for plaintiffs, who subsequently filed a consolidated amended complaint, which added the Company's previous auditors, Ernst & Young LLP, as a defendant. The consolidated amended complaint alleged that during a proposed class period of May 5, 2000 through April 1, 2002, the defendants violated sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 by overstating revenues in violation of generally accepted accounting principles. The plaintiffs sought an unspecified amount of actual and exemplary damages, costs of court, pre- and post-judgment interest and attorneys' and experts' fees. The Company, its named current and/or former directors and officers, and the class representative entered into a memorandum of understanding, which contemplated allowance of a "class claim" to assert the rights of the class in the Chapter 11 Cases and an ultimate settlement for cash to be funded out of the Debtors' cash and directors' and officers' insurance policies. The memorandum of understanding was approved upon notice and a hearing by order of the Bankruptcy Court dated December 10, 2003. Pursuant thereto, the Company funded its portion of the settlement amount ($980,000) to an escrow account in 2003. The parties have since finalized their settlement agreement, which contains terms substantially in accordance with the terms of the memorandum of understanding. On December 29, 2004, the Bankruptcy Court granted Seitel's motion for approval of the parties' full settlement agreement. By order dated July 29, 2005, the United States District Court approved the parties' settlement. The carrier of the Company's directors' and officers' insurance policies is obligated to timely fund the balance of the settlement (its portion), in accordance with the terms of the order. The action is expected to continue as between the class representative and Ernst & Young LLP.
The original complaint alleges that defendants improperly recognized revenue and net income during fiscal years 2000 and 2001 by recording revenue on data licensing contracts, prior to specific data being selected by and delivered to its customers. The complaint further alleges that top insiders profited illegally from insider trading in Seitel's common stock and earned exorbitant commissions and bonuses that were tied to reported revenue and earnings. During the Class Period and as a result of defendants' misrepresentations, shares of Seitel common stock traded as high as $23.03 per share. Seitel currently trades, after having restated its false financial statements, at approximately $8.00 per share. On May 3, 2002, Seitel issued a press release acknowledging that the financial statements it issued during the class period were not prepared in conformity with generally accepted accounting principles. Seitel also acknowledged that the May 3, 2002 disclosures were a result of its conversations with the SEC.