By the Order and Final Judgment entered on January 10, 2007, the settlement is approved as fair, reasonable and adequate and the complaint is dismissed with prejudice. According to the Order, the plaintiffs’ counsel is awarded $3,741,083.09 in reimbursement of expenses and 14% of the settlement fund for their attorney fees.
According to a press release dated May 18, 2006, Sears, Roebuck and Co., a wholly owned subsidiary of Sears Holdings Corporation, announced the company has reached a preliminary agreement to settle class action litigation brought on behalf of purchasers of Sears, Roebuck securities during the period from October 24, 2001 through and including October 14, 2002 that had been pending in the United States District Court for the Northern District of Illinois and captioned In re Sears, Roebuck and Co. Securities Litigation, No. 02 C 07527. The litigation concerned statements made by Sears Roebuck concerning its credit card business during the class period. Sears, Roebuck sold that business in November 2003.
Under the settlement, Sears, Roebuck is required to make a payment of $215 million. The company has made claims under relevant insurance policies, and expects that, after giving effect to anticipated insurance proceeds, the cash payment for settlement by Sears, Roebuck will be approximately $85 million on a pre-tax basis. Because Sears Holdings had established a reserve for the expected settlement by Sears, Roebuck, the settlement is not expected to have an effect on earnings. The settlement is subject to judicial approval.
By the Notice of Pendency of Class Action dated March 18, 2005, on April 14, 2003 and May 5, 2003, the Court issued Orders appointing The Department of the Treasury of the State of New Jersey and its Division of Investment as the Lead Plaintiff in the Action and approved its choice of Milberg Weiss Bershad & Schulman LLP as Lead Counsel and Miller Faucher and Cafferty LLP as Liaison Counsel in the Action. On June 16, 2003, the New Jersey Treasury Department filed its Consolidated and Amended Class Action Complaint For Violations Of Federal Securities Law alleging that the Defendants made materially false and misleading statements and omissions in public documents and statements they disseminated during the Class Period to the investing public, including press releases and financial reports, thereby allegedly artificially inflating the price of Sears’ common stock. On July 16, 2003, the Defendants moved to dismiss the Complaint. By Order dated October 23, 2003, the Court denied the Defendants’ motions to dismiss. This ruling assumed the truth of the allegations of the Complaint and did not make factual findings. On November 14, 2003, the Defendants answered the Complaint. The Defendants deny all allegations of wrongdoing asserted against them.
The original complaint charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of materially false and misleading statements to the market between January 17, 2002 to October 17, 2002. According to the complaint, defendants, throughout the Class Period, represented that Sears was growing its
earnings strongly, driven by its Credit and Financial Products segment and that it would achieve earnings growth of 22% in 2002 over 2001. In addition, in each of its press releases and SEC reports filed during the Class Period, Sears reported its provisions for uncollectible accounts and in, its 2001 annual report represented that such reserves were "adequate." These, and other statements detailed in the complaint, were allegedly false and misleading because, according to the complaint, they did not disclose that the Company's risk for uncollectible accounts had increased materially throughout the Class Period and, in addition, that Sears was under-reserving for its uncollectible accounts which inflated its earnings and balance sheet. On October 17, 2002, Sears reported in a press release that it will grow its 2002 earnings by 15%, rather than the 22% it reaffirmed as recently as ten days previously, because of a "$222 million increase in the domestic provision for uncollectible accounts." In addition, according to the press release, earnings for the third quarter were 26% less than the previous year. In reaction to the press release, the price of Sears common stock plummeted, falling 32%, from an October 16 close of $33.95 per share to close at $23.15 per share on October 17, on extremely heavy trading volume.