On April 16, 2007, Datatec Lead Plaintiff Group filed a Motion for Preliminary Approval of Settlement. According to the motion, with the assistance of a private mediator, Lead Plaintiffs have reached an agreement to settlement claims asserted against Deloitte & Touche and one of the individual defendants for $750,000. Lead Plaintiffs intend to file a motion for voluntary dismissal without prejudice of the remaining individual defendant after a hearing on final approval of the proposed settlement.
The defendants have filed several motions to dismiss the Consolidated Second Amended Class Action Complaint. On October 30, 2006, the Court entered the Order signed by Judge Garrett E. Brown, Jr. granting in part and denying in part two motions to dismiss the Consolidated Second Amended Class Action Complaint filed by two individual defendants, granted defendant Deloitte & Touche LLP’s motion to dismiss, and denied the January 13, 2006 motion to consolidate case. The parties engaged in mediation.
On December 27, 2004, the Court entered the Order granting the Datatec Group's motion for appointment as lead plaintiff. Further, the Datatec Group's motion for approval of selection of lead counsel is also granted. On March 1, 2005, the Court entered the Order administratively dismissing the case as to Datatec Systems due to its filing for bankruptcy. On May 2, 2005, the plaintiffs filed a Consolidated Amended Class Action Complaint. On June 16, 2005, the Court entered the Stipulation of Dismissal with Prejudice as to one individual defendant. On June 29, 2005, the defendant filed a motion to dismiss. The motion was dismissed by the Order entered on October 11, 2005. On October 31, 2005, the plaintiffs filed a Consolidated Second Amended Class Action Complaint against defendants Deloitte & Touche LLP and two individual defendants.
The original complaint alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act. CEO Isaac Gaon told investors that Datatec was on track to earn $0.14 to $0.16 per share for fiscal 2004. Datatec, however, hid its true financial condition so that it could obtain continued financing from IBM Credit, an important company lender.
The complaint further alleges that on December 5, 2003, Datatec surprised investors with the news that CEO Gaon had been thrown out and replaced by a new CEO, Raul Pupo. On December 17, 2003, Datatec told investors it would suffer a $10 million loss for the fiscal quarter ended October 31, 2003, and that Datatec's Audit Committee had hired outside counsel to review Datatec's valuation of its long-term contracts. IBM Credit has since refused to waive Datatec's non-compliance with financial covenants. Datatec's stock price fell substantially on large volume.