On June 18, 2008, the lead plaintiffs filed a motion for settlement. On July 17, 2008, the $16 million proposed settlement was preliminarily approved. A settlement hearing was set for October 13, 2008 before Judge Shira A. Scheindlin. On October 17, 2008, the Court entered the Final Judgment approving the settlement and dismissing the action with prejudice. Further, the Court approved the plan of allocation of settlement proceeds and awarded lead plaintiffs’ counsel’s attorney fees in the amount of 25% of the Settlement Fund and $195,189.94 for reimbursement of expenses.
On February 24, 2005, the Court entered the Order granting the motion to appoint City of Roseville and MILA Pension Fund as Lead Plaintiffs and their selection of the law firm of Lerach Coughlin Stoia Geller Rudman & Robbins LLP as Lead Counsel. The actions were consolidated in lead case 04-CV-7689. On May 13, 2005, a Consolidated Amended Complaint was filed and the defendants responded by filing a motion to dismiss the Consolidated Amended Complaint. Before any ruling, the plaintiffs filed a Second Consolidated Amended Complaint, and the defendants again responded by filing a motion to dismiss the Second Consolidated Amended Complaint. On July 20, 2007 Judge Owen entered his order denying the defendants' motions to dismiss the first and second consolidated complaint. The judge also granted in part, denied in part plaintiffs' motion to strike certain exhibits from the defendants' motions to dismiss.
The original complaint charges Tommy Hilfiger with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. More specifically, the complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that the defendants shifted profits to lower-tax jurisdictions by paying buying-agency commissions to other Tommy Hilfiger subsidiaries; (2) more specifically, the defendants reported revenue generated in the United States as if it were earned in a foreign division, thereby effectively lowering the Company's tax rate; (3) that as a result of this, the Company's financial results were in violation of generally accepted accounting principles ('GAAP'); (4) that the Company lacked adequate internal controls; and (5) that as a result of the above, the Company's financial results were materially inflated at all relevant times. On September 24, 2004, after the market closed, Tommy Hilfiger announced that Tommy Hilfiger U.S.A., Inc. ('THUSA'), a wholly owned subsidiary of Tommy Hilfiger, had received a grand jury subpoena issued by the U.S. Attorney's Office for the Southern District of New York seeking documents generally relating to THUSA's domestic and/or international buying office commissions since 1990. Certain of THUSA's current and former employees had also received subpoenas. According to the Company, THUSA pays buying office commissions to a non-U.S. subsidiary of Tommy Hilfiger Corporation to provide or otherwise secure certain services, including product development, sourcing, production scheduling and quality control functions. It appears that the investigation is focused on whether the commission rate is appropriate. News of this shocked the market. On September 27, 2004, shares of Tommy Hilfiger fell $2.87 per share, or 21.79 percent, to close at $10.30 per share on unusually high trading volume.