According to the Company’s FORM 10-Q for the period ended July 31, 2006, on April 21, 2006, counsel for the plaintiffs and defendants agreed to settle the class action litigation for a payment of $5,250,000. The District Court entered a Final Judgment and Order of Dismissal with Prejudice on August 17, 2006 concluding the litigation. The settlement payment in the class action was fully covered by the Company’s directors and officer’s insurance policies.
As summarized by the same SEC filing, on April 16, 2003 the United States District Court for the Northern District of Texas, Dallas Division, issued an order consolidating a number of purported class action lawsuits into a Consolidated Action styled In re Carreker Corporation Securities Litigation, Civil Action No. 303CV0250-M. On October 14, 2003 the plaintiffs filed their Consolidated Class Action Complaint. The complaint, filed on behalf of purchasers of the Company’s common stock between May 20, 1998 and December 10, 2002, inclusive, alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all defendants (the Company, John D. Carreker Jr., Ronald Antinori, Terry L. Gage and Ernst & Young, the Company’s auditors), violations of Section 20(a) of the Exchange Act against the individual defendants, and violation of Section 20A of the Securities Exchange Act against defendants John D. Carreker, Jr. and Ronald Antinori. The complaint also alleges, among other things, that defendants artificially inflated the value of Carreker stock by knowingly or recklessly misrepresenting the Company’s financial results during the purported class period. On March 22, 2005 the Court dismissed the action without prejudice and allowed the plaintiffs 60 days in which to file an amended complaint. Also the Court dismissed, with prejudice, all claims by shareholders relating to periods prior to July 31, 1999. On May 31, 2005, the plaintiffs filed an Amended Consolidated Class Action Complaint on behalf of purchasers of the Company’s common stock between July 30, 1999 and December 10, 2002, inclusive, which reiterates the allegations in the first complaint, and alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all defendants (the Company, John D. Carreker Jr., Ronald Antinori and Terry L. Gage) except Ernst & Young LLP, violations of Section 20(a) of the Exchange Act against the individual defendants, and violations of Section 20A of the Securities Exchange Act against defendants John D. Carreker, Jr. and Ronald Antinori. The plaintiffs sought unspecified amounts of compensatory damages, interest and costs, including legal fees.
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 May 20, 1998 and December 10, 2002. According to the complaint, throughout the Class Period, Carreker filed financial statements with the SEC which represented that the Company was consistently delivering numerous consecutive quarters of record, double-digit growth, which the Company attributed to the strong demand for its products and Carreker's business model. In addition, according to the complaint, the Company expressly assured investors of its "dedication to transparent reporting practices" and highlighted the supposed "quality and integrity of (Carreker's) accounting and corporate governance practices."
These statements were materially false and misleading, according to the complaint, because they failed to disclose that the Company had been improperly recognizing revenues throughout the Class Period, thereby artificially inflating its revenues, income and earnings per share. On December 10, 2002, the Company issued a press release announcing that it was investigating whether revenues were
improperly recognized by being booked at once instead of ratably over a
period of time, as required by applicable generally accepted accounting
principles. This belated disclosure severely and negatively impacted
Carreker's stock price, causing it to fall by 22.6% in one day on
extremely heavy trading volume, from a December 9 close of $5.08 per
share to close at $3.93 per share on December 10. Subsequently, the SEC
initiated an investigation, which is ongoing, into the Company's
accounting practices. On January 28, 2003, the Company announced that it
will be restating the financial reports it has filed since 1998.