According to a press release dated December 11, 2006, MicroFinancial Incorporated (AMEX:MFI) announced that on December 6, 2006, the parties filed an Agreement of Dismissal with the United States Court of Appeals for the First Circuit whereby the Plaintiffs voluntarily agreed to dismiss their appeal with prejudice.
On September 13, 2005, the Court entered the Order consolidating two motions to dismiss into the motion to dismiss filed by MicroFinancial Inc. The motions were consolidated for administrative purposes. On June 14, 2006, the Court entered the Order by Richard G. Stearns granting the motion to dismiss. On July 12, 2006, the plaintiffs filed a notice of appeal from the Order dismissing the case. The appeal is currently pending in the First Circuit Court of Appeals.
As summarized by the Company’s FORM 10-Q for the quarterly period ended March 31, 2006, in April 2004, an Amended Class Action Complaint was filed which added additional defendants and expanded upon the prior allegations with respect to the Company. The Company has filed a Motion to Dismiss the Amended Complaint, which is awaiting decision by the Court.
The original complaint alleges 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 material misrepresentations to the market throughout the Class Period which statements had the effect of artificially inflating the market price of the Company's securities.
Specifically, the Complaint alleges that the defendants represented that the Company's business and operations were being conducted in a profitable and lawful manner. In offering documents issued in connection with its 1999 initial public offering and in the Company's periodic filings with the SEC, the Company described itself as a 'specialized' commercial finance enterprise that leases and rents 'low-priced' equipment and provides other financial services. Throughout the Class Period, the Company issued highly positive earnings reports, as well as forecasts for the Company's continued growth and profitability. In addition, the complaint alleges that the Company materially overstated its revenues and earnings by improperly recognizing millions of dollars of financing income, fees and other revenues arising from delinquent and defaulted commercial leasing, rental and finance contracts that defendants knew, or recklessly disregarded, were uncollectible because the contracts were unenforceable by their terms. Additionally, defendants materially understated MicroFinancial's credit losses on tens of thousands of delinquent customer accounts and certain third-party 'dealer receivables' which defendants never intended to collect but, in many instances, offset against the Company's funding of new contracts. As a result, defendants materially misrepresented the Company's current and future revenues and profits and issued financial statements that violated generally accepted accounting principles ('GAAP') and SEC reporting requirements throughout the Class Period.
Further, the complaint alleges that on August 14, 2002, MicroFinancial disclosed in its Form 10-Q for the quarter ended June 30, 2002, that the Company was the target of a combined federal and state inquiry into the Company's leasing and credit collection practices, among other things. Then just two months later on October 11, 2002, defendants stunned the market by announcing that MicroFinancial was ceasing to make any new lease originations as part of a 'new business strategy to leverage the Company's technology and loan servicing platform.' Market reaction to the Company's 'new business strategy' announcement was swift and severe. The Company's common stock lost 37% of its value to close at $2.14 per share on October 11, 2002. The Company's stock price has never recovered, and its common shares have continued to trade at or below that level to the current date, representing more than an 85% loss in value from MicroFinancial's IPO price of $15.00 per share.