On September 9, 2003, the Court entered the Order granting the motion to appoint plaintiff Morgan Group Holding as lead plaintiff and approving Entwistle & Cappucci LLP as lead counsel. Beginning in December 2003 to February 2005, the plaintiff filed various notice of voluntary dismissals against the individual defendants and defendant Ernst & Young LLP. The last notice of voluntary dismissal of an individual defendant was filed on February 2, 2005.
The complaint alleges violations of the federal securities laws and New York state common law against various members of the Company's management as well as against the Company's independent auditor at the time, Ernst & Young LLP, and has been filed in the United States District Court for the Southern District of New York. The lawsuit is brought on behalf of all persons who purchased Morgan securities between November 13, 2001 through August 19, 2002 (the "Class Period"), including all persons who exercised non-transferable warrants to purchase shares of the Company's common stock pursuant to a December 12, 2001 Prospectus and Registration Statement. The complaint alleges that defendants violated Sections 10(b) and 20(a) of the Exchange Act and Sections 11 and 15 of the Securities Act of 1933, as well as, New York state common law fraud stemming from the Company's failure to truthfully disclose that it was in violation of several loan covenants and other provisions contained within a financing agreement between the Company and GMAC Commercial Credit LLC (the "Credit Facility") and properly report receivables due to the lender pursuant to its agreement with the Company. As a result of Morgan's failure to comply with the Credit Facility's loan covenants during the Class Period and the subsequent discovery of such violations, the Company was effectively deprived of credit sources. This loss of financing ultimately forced Morgan and its subsidiaries to file for protection under the Bankruptcy Code, thereby causing damages to Plaintiff and all other investors in Morgan securities.