The original complaint charges that HiEnergy and certain of its current and former officers and directors violated Section 10b of the Securities Exchange Act of 1934 by failing to disclose material information concerning the background of certain of its officers and directors. In addition, the complaint alleges that at least of the Company's former officers acted with another individual to manipulate the price of HiEnergy's stock. The complaint also alleges that the Company filed false financial statements during the Class Period. As a result of these misrepresentations, according to the complaint, the price of HiEnergy securities was artificially inflated during the Class Period.
As disclosed by the Company’s FORM 10-KSB for the fiscal year ended April 30, 2006, in February 2005, plaintiff's counsel filed a First Amended Complaint entitled and styled, "In re: HiEnergy Technologies, Inc. Securities Litigation," Master File No. 8:04-CV-01226-DOC (JTLx). On Friday, March 25, 2005, the Company timely filed responsive pleadings as well as Motions to Dismiss the Plaintiffs' First Amended Complaint arguing that the Complaint failed to state a claim upon which relief can be granted. On June 17, 2005, the Court issued an Order Granting the Motions to Dismiss (the "Order"), finding that the Plaintiffs failed in the First Amended Complaint to allege causation of loss resulting from any alleged omissions and/or misrepresentations of HiEnergy or the Company’s former Chairman, to sustain a cause of action for securities fraud under ss.10(b) of the Exchange Act and Rule 10b-5 of the SEC, that the Plaintiffs had failed to plead actual reliance on any allegedly false or misleading filings of HiEnergy to sustain a claim under ss.18 of the Exchange Act, and that the Plaintiffs had failed to allege a primary violation of any securities laws to sustain a claim for a violation of ss.20(a) of the Exchange Act. On July 5, 2005, the Plaintiffs filed a Second Amended Complaint in compliance with the Court's Order. On October 24, 2005, the Court issued a Minute Order granting in part and denying in part our Motions to Dismiss, finding that the Plaintiffs failed in the Second Amended Complaint to sustain a cause of action for securities fraud under ss.10(b) of the Exchange Act and Rule 10b-5 of the SEC against the Company’s former Chairman and for claims that the Company filed false and misleading financial statements and executed suspicious stock sales. On November 14, 2005, the Court held a scheduling conference at which the Plaintiff informed the Company that it would not file a Third Amended Complaint. In accordance with the Scheduling Order from the Court, class representative motions are to be filed within 90 to 120 days and pre-trial conference has been scheduled for September 11, 2007.
On August 14, 2006, the plaintiffs filed a renewed motion for Class Certification and to Appoint Class Representatives. On September 25, 2006, Judge David O. Carter granted the plaintiffs’ motion for Class Certification.
According to a press release dated March 11, 2008, the action initially named as defendants HiEnergy and its former officers and directors Bogdan Maglich, Barry Alter and Gregory Gilbert and an alleged control person of HiEnergy, Phillip Gurian. The court has dismissed these individual defendants from the action, which will now proceed only against HiEnergy.
According to a press release dated October 8, 2008, a hearing will be held on December 15, 2008 at 2:00 p.m. in Courtroom 9, of the U.S. Courthouse located at 312 North Spring Street, Los Angeles, California, to determine whether the Court should approve a settlement between the Class and HiEnergy's Chapter 7 Bankruptcy trustee. The class action complaint alleges claims under the federal securities laws against HiEnergy Technologies, Inc. ("HiEnergy") arising from alleged misrepresentations and omissions of material facts during 2002 and 2003. HiEnergy is currently in chapter 7 bankruptcy liquidation proceedings. The proposed Settlement with HiEnergy's chapter 7 bankruptcy trustee calls for the trustee to assign to the lead plaintiff the bankruptcy estate's contingent first party rights against Navigators Insurance Company (Navigators) for that insurance provider's alleged wrongful refusal to provide defense and indemnity benefits to HiEnergy under an insuring agreement with HiEnergy for liability insurance coverage. In return for such assignment, the Class will release HiEnergy, its officers and directors and related persons from any liability for claims related to this action. In addition, the Class will pay HiEnergy's bankruptcy estate 25% of the net proceeds obtained by prosecuting the lawsuit against Navigators to assert HiEnergy's rights under its liability insurance policy with Navigators.
On December 16, 2008, the Court entered the Default Judgment signed by Judge Valerie Baker Fairbank. According to the Judgment, as the direct and proximate result of HiEnergy's violations of § 10(b) and § 20 of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5(a), (b), & (c) of the Securities and Exchange Commission, promulgated thereunder, the class suffered compensatory damages of $9.97 million, per evidence. Judgment in the amount of $9,997,000 is granted against the defendant HiEnergy Technologies, Inc. as and for compensatory damages, with costs to be determined, all to bear interest from this date at the legal rate.
According to a press release dated July 22, 2010, pursuant to Rule 23 of the Federal Rules of Civil Procedure and an Order of the United States District Court for the Central District of California, Western Division that a hearing will be held on September 27, 2010 at 1:30 p.m. before the Honorable Valerie Baker Fairbank, United States District Judge of the Central District of California, Western Division in Courtroom 9, 312 North Spring Street, Los Angeles, California (the "Fairness Hearing") for the purpose of determining (1) whether proposed Settlement consisting of the sum of $485,000 ("Settlement Fund") to be paid by Navigators Insurance Company ("Navigators"), which issued a Directors and Officers Liability Insurance Policy to Defendant HiEnergy Technologies, Inc. ("HiEnergy"), should be approved by the Court as fair, reasonable and adequate for the settlement of all claims asserted by Lead Plaintiff on behalf of the Class against Navigators; (2) whether the proposed plan to distribute the settlement proceeds is fair, reasonable and adequate ("Plan of Allocation"); and (3) whether the application for an award of attorneys' fees of twenty-five percent of the Settlement amount and reimbursement of expenses of not more than $65,000, and an award to Lead Plaintiff of not more than $4,500 should be approved. An Order of the United States District Court for the Central District of California, Western Division approved a Previous Settlement made by Lead Plaintiff on behalf of all Class Members with the Chapter 7 Trustee of the bankruptcy estate of HiEnergy (the "Trustee"), pursuant to which the Trustee assigned to Lead Plaintiff on behalf of the Class Members all claims held by the Trustee and/or the bankruptcy estate of HiEnergy against Navigators, and pursuant to which Lead Plaintiff on behalf of all Class Members agreed to pay the Trustee 25% of the proceeds of money received in their prosecution of an action against Navigators after first deducting attorney's fees, the award to Lead Plaintiff, and expenses approved by the Court ("Trustee Payment"). The "Net Settlement Fund" is the amount of money in the Settlement Fund minus attorney's fees, the award to Lead Plaintiff, expenses approved by the Court, and the Trustee Payment.
On September 27, 2010, the $485,000 settlement was approved and the case was closed. Judge Fairbank also approved the motion for attorney fees and expenses.