The original class action complaint charges CP Ships and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The complaint alleges that during the Class Period, defendants caused CP Ships' shares to trade at artificially inflated levels through the issuance of false and misleading financial statements. As a result of this inflation, CP Ships was able to complete a convertible note offering, raising net proceeds of $200 million and obtain a new $525 million credit facility.
The complaint further alleges that on August 9, 2004, just months after this offering and credit facility was completed, CP Ships revealed that its results for 2002-2003, and possibly other quarters, were false when issued. The Company's August 9, 2004 announcement stated that 'in May, CP Ships began implementing a new SAP financial accounting system in January. The implementation has revealed some deficiencies in former systems and related business and accounting processes, for which corrective action has been taken and continues. These deficiencies resulted in insufficient accruals for certain costs and also a number of balances from 31st December 2003 that needs to be written off. The estimated negative restatement of 2003 net income is between $22 million and $27 million which will be in addition to the $8 million restatement of 2003 net income announced on 11th May 2004 in the first quarter 2004 report. Net income for 2003, which after the $8 million restatement was reported at $74 million, would become between $47 million and $52 million. To a lesser extent, 2002 will be affected with an estimated downward revision of net income of about $7 million. Net income for 2002 had been reported at $52 million. Furthermore, first quarter 2004 net income will be revised downward by about $6 million from the $8 million originally reported.' The stock dropped below $13 per share on this news.
On or after August 12, 2004, seven class action complaints were filed against CP Ships and certain of its officers and directors alleging violations of the federal securities laws. These actions, filed in the United States District Courts for the Central District of California, the Southern District of New York and the Middle District of Florida, were transferred and consolidated for pretrial proceedings in the United States District Court for the Middle District of Florida by Order dated February 17, 2005. On June 13, 2005, Lead Plaintiffs filed the Consolidated Amended Class Action Complaint for Violations of Federal Securities Laws (the “Complaint'), asserting claims under Sections 10b, Rule 10b-5, and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act'). The Complaint alleged that during the period between January 29, 2003 and August 9, 2004, inclusive, Defendants issued materially false and misleading statements and/or concealed material adverse facts relating to CP Ships’ financial condition, including its profits and savings, when, in fact, the Company’s costs were being regularly underaccrued. Specifically, the Complaint alleged that Defendants’ alleged conduct concealed CP Ships’ true financial condition, enabling Defendants to, among other things, sell almost $200 million of the Company’s convertible notes as well as secure a $525 million credit facility on very favorable terms. The Complaint further asserted that, as a result of Defendants’ alleged conduct, the price of CP Ships Securities was artificially inflated, causing damage to those who purchased or acquired the Company’s Securities during the Class Period.
Defendants filed a motion to dismiss the Complaint on August 9, 2005, which Lead Plaintiffs opposed on October 11, 2005. While Defendants’ motion to dismiss was pending, the Lead Plaintiffs, on behalf of themselves and the Class, and Defendants (collectively, the “Parties') agreed to mediate the Action, and the Court stayed the Action pending the outcome of the mediation. On May 22, 2006, the Parties participated in a formal mediation session, which was later resumed on September 21, 2006. Following the mediation and after further settlement negotiations, the Parties were unable to reach an agreement and moved the Court to reopen the Action on November 9, 2006. The Court reopened the Action by oral order on November 14, 2006.
By Order dated April 5, 2007, the Court granted Defendants’ motion to dismiss the Complaint and granted Lead Plaintiffs 45 days’ leave to amend as of the date of the Order. Lead Plaintiffs opted not to amend, and on June 20, 2007, Lead Plaintiffs appealed the Court’s ruling to the Appeals Court. The Court in this Action ordered the case closed on June 26, 2007.
While the appeals process was ongoing, the Parties resumed their settlement negotiations, which included participation in a telephonic mediation session with an experienced mediator for the Appeals Court. The Parties reached a tentative agreement to settle the Action in November 2007 and executed a Memorandum of Understanding outlining the general terms of their proposed settlement on December 7, 2007.
On June 19, 2008, the Court denied the motion to approve the settlement. On October 21, 2008, the Court granted the Lead Plaintiffs' Renewed Motion for Final Approval of Settlement. The settlement fund in the amount of $1,300,000 in cash and the motion for attorney’s fees and expenses were approved. On November 4, 2008, a notice of appeal was filed in the Eleventh Circuit Court of Appeals regarding the settlement. On September 15, 2009, the Eleventh Circuit affirmed the decision of the District Court.