The original 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 UICI securities. More specifically, the complaint charges UICI 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 by issuing a series of material misrepresentations to the market between the class period.
The complaint alleges that during the Class Period, the defendants, who controlled and were senior officers of UICI, engaged in a scheme to conceal UICI's badly flagging Academic Management Services Corp. ('AMS') division to prevent a decline in the UICI's stock price. UICI's actual financial results and the true status of its operations were concealed by defendants, which artificially inflated or maintained the market price of UICI shares during the Class Period. Each of the statements issued during the Class Period was false and misleading and misrepresented and/or failed to disclose the following material adverse information: (i) that defendants knowingly tolerated UICI's inadequate internal accounting controls and consequently lacked any reasonable basis for the financial results reported by them; (ii) that UICI's reported income was materially overstated by in excess of $65 million; (iii) that only through UICI's accounting fraud had UICI achieved the earnings reported by defendants; (iv) that the AMS division was not successful and its fundamentals and prospects were deteriorating; and (v) that UICI had failed to account for costs associated with liabilities resulting from its AMS program and its reserves were materially understated.
The complaint further alleges that on July 21, 2003, UICI revealed that it would record a charge of at least $65 million. This revelation caused trading in UICI stock to be halted on the New York Stock Exchange and ultimately to plummet to less than $12 per share, a decline of 45% from its Class Period high of $21.22 per share.
On October 18, 2004, the Court consolidated the four actions under the following title and number: In re UICI Securities Litigation, 3:04-CV-1149-P (N.D. Tex.) (the “Litigation”). The operative complaint (the “Complaint”) is the First Amended Consolidated Complaint for Violation of the Federal Securities Laws dated May 27, 2005. The Complaint alleges claims for violations of §§10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.
On November 16, 2004, the Court issued an order appointing Charles Patterson and Josh Millet as Lead Plaintiffs under §21D(a)(3)(B) of the Exchange Act and approved Lead Plaintiffs’ selection of Coughlin Stoia Geller Rudman & Robbins LLP and Cohen, Milstein, Hausfeld & Toll, P.L.L.C. as co-lead counsel pursuant to §21D(a)(3)(B)(v) of the Exchange Act and Provost & Umphrey Law Firm, LLP and Lawson, Fields & Calhoun, P.C. as liaison counsel.
On July 11, 2005, Defendants filed motions to dismiss the Complaint. On September 29, 2006, the Court denied Defendants’ motions to dismiss. Thereafter, Lead Counsel served written discovery requests. On or about November 8, 2006, the settling parties agreed to participate in mediation and exchange discovery in connection therewith. On January 10, 2007, the Lead Plaintiffs and Defendants participated in mediation with the Honorable Daniel Weinstein (Ret.). Although the Lead Plaintiffs and Defendants made progress at the mediation, a settlement was not reached. Thereafter, the Lead Plaintiffs and Defendants continued to litigate while also conducting settlement negotiations with the assistance of Judge Weinstein. On or about March 29, 2007, the Lead Plaintiffs and Defendants reached an agreement-in-principle to settle the Litigation. On or about May 1, 2007, the Lead Plaintiffs and Defendants executed a memorandum of understanding setting forth the principal terms of the settlement. The terms of the Stipulation are the product of arm’s-length settlement negotiations.
On October 12, 2007, District Court Judge Jorge A Solis preliminarily approved the proposed settlement in the amount of $6,900,000 in cash. On January 23, 2008, Judge Solis granted the motions for final approval of the settlement and plan of allocation as well as the motion for award of attorney fees and expenses. The Court issued the Final Judgment and Order dismissing the action with prejudice.