AXT, Inc. manufactures semiconductor parts known as substrates for a variety of electronic products including wireless and fiber optic telecommunications, lasers, light emitting diodes and consumer electronics.

The original Complaint charges AXT and the Company's CEO with violations of federal securities laws. Plaintiff claims Defendants' omissions and material misrepresentations concerning AXT's operations and performance during the Class Period artificially inflated the Company's stock price, inflicting damages on investors.

Specifically, the Complaint alleges Defendants knew or recklessly disregarded that their statements were materially false and misleading when made because AXT: (i) did not follow requirements for testing of products (and provision of testing data and information) relating to customer requirements; and, as a consequence of this conduct, (ii) failed to accrue adequate reserves; (iii) falsely stated its reported reserves, revenue and income; and (iv) issued false statements about the Company meeting customer requirements.

The Complaint further alleges that on April 27, 2004, the Company disclosed that the "first quarter's financial review and verification process has been delayed due to an investigation by AXT's Audit Committee of certain product testing practices and policies." News of this investigation shocked the market, and the next day, April 28, 2004, AXT common stock dropped 13.64% on heavy trading. One day later, AXT stock plummeted even further, falling nearly 23% in one day, to close at $2.20 on April 29, 2004, on even heavier trading than the previous day. On May 24, 2004, AXT disclosed to the SEC that the investigation confirmed that, for an undisclosed period of years, AXT had "not followed requirements for testing of products and provision of testing data and information relating to customer requirements for certain shipments made over the past several years." The Company further disclosed that during first-quarter 2004, AXT increased its reserve for sales returns "related to our failure to follow certain testing requirements and provision of testing data and information to certain customers."

As summarized by the Company’s FORM 10-Q for the quarterly period ended March 31, 2008, on April 5, 2005, the lead Plaintiff filed a consolidated Complaint, captioned as Morgan v. AXT, Inc. et al., No. C 04 4362 MJJ. The lawsuit Complaint names AXT and the Company’s former chief technology officer as Defendants, and is brought on behalf of a class of all purchasers of the Company’s securities from February 6, 2001 through April 27, 2004. The Complaint alleges that the Company announced financial results during this period that were false and misleading.

Defendants filed a Motion to Dismiss the Complaint on May 20, 2005. On September 23, the Court granted the Company’s motion to dismiss the Complaint, with leave to amend.

Lead Plaintiff filed an amended Complaint on November 14, 2005. Defendants filed a Motion to Dismiss the amended Complaint on December 19.

On September 10, 2007, the parties entered into a Stipulation and Agreement of Settlement. The Court granted preliminary approval of the Settlement on November 6. On February 26, 2008, the Court granted final approval of the Settlement, including an award of Attorneys’ Fees and Expenses, and entered Final Judgment.

On March 3, 2009, the Court approved distribution of the Settlement Fund.