On January 3, 2005, the Court entered the Orders awarding lead class plaintiffs' counsel's attorneys' fees and reimbursement of expenses and approving the plan of allocation. The Court further entered the Final Judgment and Order of Case Dismissal With Prejudice signed by U.S. District Judge James S. Gwin. The case is closed.
According to a filing with the Securities and Exchange Commission from July 2004, FirstEnergy Corporation reached an agreement to pay $89.9 million to settle this class action lawsuit. Its insurance carrier will pay $71.92 million. The company will pay the remaining $17.98 million. The company defendant said the agreement didn't amount to an admission of wrongdoing. The settlement is subject to court approval.
On December 9, 2003, the Court entered an Order consolidating the actions under the caption In re: FirstEnergy Securities Litigation, Case No. 5:03CV01684. The Court appointed lead plaintiff approved their choice of lead counsel. On January 23, 2004, an Amended Complaint was filed, and the defendants soon after filed a motion to dismiss the Plaintiffs' Consolidated Complaint. On May 3, 2004, the Court entered the Order denying the defendants' motion to dismiss as to all claims except the claim brought under Sec. 12(a)(2). The Sec. 12(a)(2) claim was dismissed without prejudice for lack of standing. Further, on June 24, 2004, Court issued an Order denying defendants' motion for reconsideration of the denial to dismiss plaintiffs' amended consolidated complaint. The plaintiffs soon after filed a Proposed Stipulation and Agreement of Settlement.
At least a dozen complaints were filed in U.S. District Court and Summit County Common Pleas Court within the last year against the company, its executives and directors by firms representing shareholders or debt holders. The various federal court securities lawsuits were consolidated, according to FirstEnergy, which said two similar lawsuits also were pending in state courts.
The original complaint alleges that the company misled shareholders and others about its profitability. The complaint alleges that FirstEnergy and certain of its officers and directors with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Complaint alleges that defendants violated federal securities laws by issuing a series of material misrepresentations to the market during the Class Period, thereby artificially inflating the price of FirstEnergy securities.
More specifically, the complaint alleges that these statements were materially false and misleading because they failed to disclose and misrepresented the following adverse facts, among others: (1) that the Company had materially overstated its earnings, revenues, net income, and earnings per share; (2) that the Company was improperly accounting for its annual amortization expenses by using all transition revenues recorded on all regulatory books rather using only the portion of transition revenue that corresponded to transition costs to determine the appropriate amortization; (3) that the Company was improperly accounting for above-market leases; (4) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (5) that as a result, the value of the Company's net income and financial results were materially overstated at all relevant times. On August 5, 2003, the Company reported that it would have to restate its financial results for fiscal year 2002 and the first quarter of 2003 due to its improper accounting for its annual amortization expenses and for above-market leases. News of this shocked the market. Shares of FirstEnergy fell 8.5 percent to close at $31.33 per share on extremely heaving trading volume.