According to a press release dated October 12, 2005, NUI, the troubled energy holding company that was sold last year, agreed yesterday to pay $3.5 million to settle a class-action securities lawsuit. The agreement, filed in federal court in Newark, covers the company and former chief executives. Investors initially sued the company in October 2002, alleging NUI issued false statements about the true level of its debt, as well as other violations. Although they agreed to settle, NUI and the former executives continue to deny any wrongdoing and contend many of the allegations were inaccurate. Last year, AGL Resources of Atlanta bought NUI, formerly based in Bedminster.
The original complaint charges NUI Corporation and its President, Chief Executive Director, and a Director and member of the Executive Committee, with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, by issuing a series of materially false and misleading statements to the market during the Class Period concerning the failure to properly record its fixed cost expenses, accrue necessary pension expenses, and reserve adequate amounts for its self-insured medical benefits in its quarterly unaudited financial statements.
As alleged in the Complaint, throughout the Class Period, defendants
knew that NUI was confronting material problems in its businesses which
were causing NUI to incur greatly increased costs throughout the Class
Period. These costs included significant increases in fixed costs for
its telecommunications business, greatly increasing costs of
self-insuring for medical benefits, and the tremendous decline in the
value of its pension plan assets which would cause NUI to accrue
substantial pension expense. These increased material costs were
putting a tremendous strain on NUI's operating margins and, if properly
and fully accounted for in NUI's financial statements, would cause NUI
to suffer greatly reduced earnings per share.
The problem presented to defendants by these materially increasing
costs and their negative impact on NUI's earnings if properly and fully
accounted for and disclosed was exacerbated by the high level of
long-term and short-term debt on NUI's balance sheet and the declining
earnings NUI began to experience at the outset of the Class Period.
Thus, in order to mislead the market with respect to NUI's spiraling
costs and negative impact on NUI's margins and earnings, defendants
embarked on the scheme and continuing course of conduct during the
Class Period to enable NUI to complete necessary corporate acquisitions using its stock as currency and to complete a public offering of common stock to generate desperately-needed cash to pay down its short-term debt.
Finally, when NUI's newly appointed outside auditors were conducting
their audit of NUI's financial statements for Fiscal Year 2002, the
twelve months ended September 30, 2002 ("FY 2002"), defendants, on
October 18, 2002, disclosed the long-withheld truth: NUI would sustain
greatly reduced earnings for FY 2002 and FY 2003 because of its
spiraling costs, including significantly increased fixed costs to build
its back office infrastructure to support its telecommunications
business and significant increases in medical and pension benefit
expenses due to the increase in the volume of claims and the decline in
the equity market. As a result of this disclosure, NUI's share price
fell more than 50%, falling $10.17 per share, to close at $10.00 per
share on October 18, 2002, on extraordinary volume of 3.2 million