On December 1, 2006, the Court entered the Order and Final Judgment signed by U.S. District Judge Walter H. Rice. According to the Order, the settlement is approved and the complaint is dismissed with prejudice. Further, the plan of allocation is also approved, and the plaintiffs’ co-lead counsel are awarded 23% of the gross settlement fund and $214,609.25 in reimbursement of expenses.
According to a press release dated August 15, 2006, Cincinnati Bell has agreed to pay $36 million to settle a lawsuit filed by shareholders of Broadwing who claimed the company misled them about the financial health of the business. According to the lawsuit, Broadwing created a value for its shares that was inflated as a result of the boom in tech-stocks in the late 1990s. Broadwing then changed its name to Cincinnati Bell in 2003. Those who purchased stock in Broadwing between Jan. 17, 2001 and May 21, 2002, are entitled to s share in the settlement. Of the $36 million, approximately $9 million will go toward attorneys' fees and expenses of litigation.
As disclosed by the Company’s FORM 10-Q For The Quarterly Period Ended June 30, 2006, between October and December 2002, five virtually identical class action lawsuits were filed against Broadwing Inc. and two of its former Chief Executive Officers in U.S. District Court for the Southern District of Ohio. By order dated October 29, 2003, Local 144 Nursing Home Pension Fund, Paul J. Brunner and Joseph Lask were named lead plaintiffs in a putative consolidated class action. On December 1, 2003, lead plaintiffs filed their amended consolidated complaint on behalf of purchasers of the Company’s securities between January 17, 2001 and May 20, 2002, inclusive. This amended complaint contained a number of new allegations. Cincinnati Bell Inc. was added as defendant in this amended filing. The Company’s motion to dismiss was filed on February 6, 2004. Plaintiffs filed their opposition on April 2, 2004, and the Company filed its reply on May 17, 2004. On September 24, 2004, Judge Walter Rice issued an Order granting in part and denying in part the Company’s motion to dismiss. The Order indicated that a more detailed opinion would follow, which would provide detail regarding the portions of the case dismissed. On April 28, 2006, the Company and plaintiffs entered into a Memorandum of Understanding (“MOU”), which sets forth an agreement in principle to settle this matter. For these lawsuits and the derivative complaint discussed below, the Company reserved $6.3 million in the first quarter of 2006 to reflect its anticipated contribution to the settlement fund and to cover other settlement-related expenses. Under the MOU agreement, the Company and certain of its insurance carriers will contribute a total of $36 million to settle the claims in this matter and obtain in exchange a release of all claims from the class members. On July 12, 2006, the Company and plaintiffs entered into a definitive Stipulation and Agreement of Settlement reflecting the terms of the above-referenced MOU. On July 21, 2006, Judge Rice issued a Preliminary Order approving the notice and proof of claim forms to be mailed to class members and scheduling a Settlement Fairness Hearing on September 6, 2006. A final settlement of this matter is contingent upon the satisfaction of various conditions contained in the Stipulation and Agreement of Settlement as well as approval by the court.
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 a series of material misrepresentations to the market between January 17, 2001 and May 20, 2002 thereby artificially inflating the price of Broadwing securities. As alleged in the complaint, Broadwing, together with its consolidated subsidiaries, purported to be a full-service, local and national provider of data and voice communications services. Throughout the Class Period, as alleged in the complaint, defendants represented to investors that Broadwing's business was strong; that it had unique attributes that set it apart from its competitors in the industry and that immunized it from the adverse effects of the industry-wide downturn and related "bandwidth glut"; that the Company was successfully achieving strong financial results and executing on its business plan; and that the Company's goodwill asset was reasonably valued at $2.2 billion. As alleged in the complaint, these statements were materially false and misleading because they failed to disclose, among other things, that: (a) the Company was not increasing its revenue by winning over new customers with unique and superior service offerings but rather through the use of one-time transactions with other carriers and sham swap transactions that had no economic substance; (b) Broadwing's broadband revenue flow was extraordinarily unreliable because it was derived in large part from its competitors who were themselves vulnerable to the telecommunications industry downturn; and (c) the Company's reported goodwill and shareholder equity were grossly over-valued. On May 20, 2002, the truth emerged that a material portion of Broadwing's revenue was derived from one-transactions with its competitors. Broadwing's share price plummeted 30% on these reports and related concerns about the quality of Broadwing's revenue reporting and liquidity, to close at $3.70 down $1.58 from the previous days closing price of $5.28.