According to an article dated July 31, 2007, on July 5, 2007, the U.S. District Court for the Southern District of Ohio granted plaintiffs' motion to lift a bankruptcy stay as to nonsolvent individual corporate directors in a securities fraud class action. Shareholders of MCSi Inc. sued the company and two of its individual directors for securities fraud in a class action. … The district court granted the motion to lift the stay as to the individual defendants because there were no unusual circumstances warranting a stay.
On June 20, 2003, the defendant MCSi, Inc., filed a notice of filing of case in bankruptcy court. On July 25, 2003, the Court entered the Order staying all proceedings pursuant to the automatic stay in bankruptcy. On May 5, 2004, the plaintiffs filed a Corrected Amended Complaint. On December 2, 2004, the plaintiffs filed a motion to certify the class. The action is in mediation.
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 July 24, 2001 to February 26, 2002. According to the complaint, throughout the Class Period, defendants issued numerous statements in quarterly and annual press releases regarding the supposed strength of its business, particularly the success of its high-margin systems integration business. According to
the complaint, these, and other representations detailed therein, were
materially false and misleading because they failed to disclose that
MCSi's business was deteriorating overall and that its integration
services business was not operating as successfully as defendants had
represented. The Complaint further alleges that the scheme was designed
to artificially inflate the price of MCSi's common stock in order to
allow MCSi insiders to profit by selling their shares of MCSi common
stock at artificially inflated prices in two follow-on public offerings.
On August 15, 2001, MCSi sold 4 million shares in a secondary offering
at $11.50 per share and on December 19, 2001, the Company and certain
selling shareholders, including defendant Peppel who sold 200,000 shares
for gross proceeds of $4,575,000, undertook another public offering,
selling a total of 5.2 million shares of MCSi common stock at $22.875
per share. Then, on February 26, 2002, the Company shocked the market by
reporting a 29% decline in sales for the fourth quarter of 2001, and a
loss of $0.24 per share (including a restructuring charge). In reaction
to this announcement, the price of MCSi common stock plunged by 40%,
falling from a $17.35 per share close on February 25 to a close of
$10.40 per share on February 26, on extremely heavy trading volume.
NOTE: On June 3, 2003, MCSi, Inc. filed for Chapter 11 bankruptcy protection.