By the Final Judgment and Order of Dismissal with Prejudice entered on April 4, 2005, U.S. District Judge William G. Young approved the settlement set forth in the Stipulation of Settlement as fair, reasonable and adequate. All claims were dismissed with prejudice. The Court further issued two Orders that day approving the Plan of Allocation of Settlement Proceeds and awarding of the attorneys’ fees and reimbursement expenses. According to Ionics Inc.’s Form 10-Q for the quarterly period ended September 30, 2004, a $3 million settlement fund, to be paid entirely by the Company's insurer.
The original complaint charges Ionics, its Chief Executive Officer, and Chief Financial Officer with violations of the federal securities laws relating to the restatement of the Company's financial statements for the first and second quarters of 2002 announced in November 2002. Ionics develops and manufactures systems and provides related services for water treatment. The Company also produces desalination, water and wastewater treatment systems and instruments.
Specifically, the complaint alleges that throughout the Class Period, defendants issued numerous statements and filed quarterly reports with the SEC which described the Company' s increasing financial performance. These statements were materially false and misleading because they failed to disclose and/or misrepresented the following adverse facts, among others: (i) that the Company had materially overstated its net income and earnings per share; (ii) that the Company' s drench subsidiary was not performing to the Company 's expectations and was generating substantial losses; (iii) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (iv) that as a result, the value of the Company's net income and financial results were materially overstated at all relevant times .
The complaint further alleges that on or around November 4, 2002, the Company shocked the market by announcing that it would be restating its financial results for the first and second quarters of 2002 "primarily as a result of intercompany transactions between the Company and its French subsidiary that were erroneously recorded at the subsidiary level." Following this announcement, shares of Ionics fell $5.01 per share, or more than 20%, to close at $19.46 per share on volume of more than 1.7 million shares traded, or almost thirty times the average daily volume.