The original Complaint alleges that Sears Acceptance, Sears, Inc. its parent, and certain of Sears' officers and directors, violated Sections 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and Sections 11, 12(a) and 15 of the Securities Act of 1933, by issuing a series of materially false and misleading statements to the market. These alleged misstatements had the effect of artificially inflating the price of the 7% Notes.
Specifically, the Complaint alleges defendants, throughout the Class Period, represented that the earnings of Sears, the corporate parent of Sears Acceptance, were growing strongly, driven by Sears' Credit and Financial Products segment and that Sears would achieve earnings growth of 22% in 2002 over 2001. In addition, SEC reports filed both Sears and Sears Acceptance during the Class Period reported that provisions by Sears for uncollectible accounts and in, its 2001 annual report represented that such reserves were "adequate."
These, and other statements detailed in the Complaint, were allegedly false and misleading because, according to the Complaint, they did not disclose that Sears' risk for uncollectible accounts had increased materially throughout the Class Period and, in addition, that Sears was under-reserving for its uncollectible accounts which inflated its earnings and balance sheet. On October 17, 2002, Sears reported in a press release that it will grow its 2002 earnings by 15%, rather than the 22% it reaffirmed as recently as ten days previously, because of a "$222 million increase in the domestic provision for uncollectible accounts." In addition, according to the press release, earnings for the third quarter were 26% less than the previous year. In reaction to the press release, the price of the 7% Notes fell 8.6%, from an October 16, 2002 close of $24.05 per share to an October 17, 2002 close of $21.99 per share -- on extremely heavy trading volume.
On August 27, 2003, the Honorable Rebecca R. Pallmeyer granted the plaintiffs' motion for appointment as lead plaintiffs and approval of lead plaintiffs' selection of counsel. On October 16, 2003, the lead plaintiffs filed an Amended Class Action Complaint adding individuals and underwriters as named defendants. On January 27, 2004, the defendants filed several motions to dismiss the Amended Class Action Complaint. On September 24, 2004, Judge Pallmeyer granted in part and denied in part the various motions. Plaintiffs were given leave to file an amended complaint. On November 15, 2004, the lead plaintiffs filed a Second Amended Class Action Complaint. The defendants again filed motions to dismiss the Second Amended Class Action Complaint on January 10, 2005. On September 14, 2005, Judge Pallmayer granted in part and denied in part the defendants’ motions to dismiss. The plaintiffs were again given leave to file third amended complaint, which they did on October 28, 2005. The defendants filed a motion to dismiss the Third Amended Complaint on November 15, 2005, which was granted in part and denied in part according to an Order signed by Judge Pallmeyer on September 27, 2006.
On November 30, 2006, the plaintiffs filed a motion to certify the class and then a renewed motion to certify the class on July 2, 2007. On February 21, 2008, the lead plaintiffs filed an unopposed motion for preliminary approval of class action settlement. On February 21, 2008, a Stipulation and Agreement of Settlement was filed. The proposed settlement was in the amount of $15,500,000.00 in cash. On February 26, 2008, Judge Pallmeyer preliminarily approved the settlement. On May 1, 2008, the settlement hearing was held. Judge Pallmeyer signed the Order and Final Judgment, approving the Plaintiffs' motion for final approval of settlement, plan of allocation of settlement proceeds, and for an award of attorneys' fees and reimbursement of expenses. Lead counsel was awarded expenses in the amount of $456,755.81 and attorneys' fees of 24% of the settlement fund remaining after the reimbursement of funds.