On April 18, 2006, a Stipulation of Settlement was filed, and on May 1, 2006, the Court entered the Order preliminarily approving the $7,500,000 settlement and providing for notice. On July 24, 2006, the Court entered the Orders approving the Plan of Allocation of Settlement Proceeds and awarding attorneys fees and reimbursement of expenses. Lastly, the Court entered the Final Judgment and Order of Dismissal.
As disclosed by the Company’s FORM 10-K for the fiscal year ended January 31, 2006, on June 14, 2004, lead plaintiff Greater Pennsylvania Carpenters Pension Fund in Case No. 04C 1107 filed a consolidated amended complaint. On July 14, 2004, the District Court in the Greater Pennsylvania Carpenters action consolidated the Kaplan complaint with the Greater Pennsylvania Carpenters action, and dismissed the Kaplan action as a separate action. On August 2, 2004, the Company filed a motion to dismiss the consolidated amended complaint. On January 7, 2005, the motion to dismiss was granted in part and denied in part, with plaintiffs granted leave to file an amended complaint by February 10, 2005. On February 10, 2005, the lead plaintiff filed a first amended consolidated complaint. On March 2, 2005, the Company filed a motion to dismiss the amended complaint. On June 30, 2005, the court denied Defendants’ motions to dismiss. On July 28, 2005, Defendants filed their Answers to the First Amended Consolidated Complaint. On September 23, 2005, lead plaintiff filed its motion for class certification. After conducting certain class certification and merits discovery, the parties jointly moved for a stay of discovery and stay of briefing on lead plaintiff’s motion for class certification during the resumption of mediation efforts. By order dated January 24, 2006, the court granted the joint motion. By that same order, the court dismissed lead plaintiff’s motion for class certification without prejudice and with leave to refile on or before February 23, 2006. Lead plaintiff refiled its motion for class certification on February 23, 2006. By order dated March 16, 2006, the court dismissed Plaintiff’s Motion for Class Certification without prejudice pursuant to pending settlement discussions. By that same order, the court set a status hearing for April 24, 2006, at which time a revised discovery and briefing schedule on lead plaintiff’s motion for class certification will be set, if appropriate. While the settlement process is ongoing, the parties have reached agreement in substance to settle all claims in the First Amended Complaint, subject to a final, written agreement and court approval. The Company has not recorded any loss contingency associated with a possible settlement as the Company expects any settlement to be subject to an insurance claim.
The original complaint charges Whitehall and certain of its officers and directors with violations of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The complaint alleges that during the Class Period, defendants caused Whitehall's shares to trade at artificially inflated levels through the issuance of false and misleading financial statements. As a result of this inflation, defendants were able to complete an insider trading scheme, raising proceeds of $5.3 million.
More specifically, the complaint alleges that, throughout the Class Period, defendants issued numerous statements to the market concerning the Company's financial results, which failed to disclose and/or misrepresented the following adverse facts, among others: (1) that defendants had improperly and untimely recognized revenue on certain of the Company's customer transactions; (2) that the Company's inventory was materially overstated; (3) that defendants violated Generally Accepted Accounting Principles ('GAAP') and the Company's own internal policies regarding the timing of revenue recognition; and (4) as a result of the foregoing, the Company's revenues, net income and earnings per share published during the Class Period were materially false and misleading.
The complaint further alleges that on November 6, 2003, Whitehall announced it had received a subpoena from the U.S. Securities and Exchange Commission as part of a formal investigation into a complaint that Whitehall aided a former supplier in an accounting fraud. On December 11, 2003, Whitehall announced that it had fired its Chief Financial Officer and would delay reporting results for its fiscal third quarter, and later that month that Whitehall would be restating its financial statements for fiscal 2000, 2001 and 2002, including the 2002 quarters then ended, and the first two quarters ended July 31, 2003. On news of this, shares of Whitehall fell 7.6%, or $0.75 per share, to close at $9.04 per share on December 11, 2003.