According to a press release dated November 14, 2007, a federal judge yesterday dismissed a securities fraud class-action lawsuit against Edison-based Intelligroup, ruling the complaint alleging improper accounting failed to set forth viable claims. U.S. District Court Judge Garrett Brown issued a 195-page opinion yesterday throwing out investors' third amended complaint. The judge refused to allow a fourth revised lawsuit to be filed. Investors sued the consulting company and several of its executives in 2004, soon after Intelligroup said it would restate years of financial statements. Securities regulators investigated the company but brought no charges.
On December 20, 2006 the judge granted defendants' motions to dismiss the second complaint, but granted 30 days leave to plaintiffs to file a third complaint. Plaintiffs did so on January 25, 2007. The defendants subsequently filed a third round of motions for dismissal on March 5, 2007; the judge has yet to rule on these motions.
According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2006, on February 10, 2006, prior to the hearing on Defendants’ motions to dismiss, Plaintiffs filed a second amended consolidated complaint. Defendants’ motions to dismiss the second amended consolidated complaint are currently pending before the District of New Jersey. No trial date has been scheduled and no discovery has taken place.
As disclosed by the same SEC filing, on or about October 12, 2004, the first of six class action lawsuits was filed, on behalf of a purported class of investors who purchased the Company’s common stock, against the Company and former officers Arjun Valluripalli, Nicholas Visco, Edward Carr and David Distel (“Defendants”) in the United States District Court, District of New Jersey (“District of New Jersey”). In August 2005, the United States District Court, District of New Jersey consolidated the six class actions (the “Shareholder Class Action”) and appointed a lead plaintiff. Plaintiffs subsequently dropped Mr. Distel and Mr. Carr from the Shareholder Class Action, failing to name either of them as a defendant in the amended consolidated complaint filed on or about October 10, 2005. The Shareholder Class Action generally alleges violations of federal securities laws, including allegations that the Defendants made materially false and misleading statements regarding the Company’s financial condition and that the Defendants materially overstated financial results by engaging in improper accounting practices. The Class Period alleged is May 1, 2001 through September 24, 2004. The Shareholder Class Action generally seeks relief in the form of unspecified compensatory damages and reasonable costs, expenses and legal fees. On December 5, 2005, Defendants filed motions to dismiss the amended consolidated complaint.
The original complaint alleges that, throughout the Class Period, defendants issued numerous statements and filed quarterly and annual reports with the United States Securities and Exchange Commission regarding the Company's current financial performance and future earnings. As alleged in the complaint, these statements were materially false and misleading because defendants knew, but failed to disclose: (i) that Intelligroup was materially overstating its financial results by engaging in improper accounting practices. As detailed herein, Intelligroup has admitted that its prior financial reports are materially false and misleading as it announced that it is going to restate its previously issued financial statements filed on Form 10-K for the years ended December 31, 2003, 2002 and 2001 and filed on Form 10-Q for the quarterly periods beginning January 1, 2001 to date; (ii) that the Company lacked adequate internal controls and was therefore unable to ascertain its true financial condition; and (iii) that as a result of the foregoing, the values of the Company's revenues, net income and earnings before interest, taxes, depreciation, and amortization ("EBITDA") were materially overstated at all relevant times.
The complaint further alleges that on or around September 24, 2004, slightly over a month after its auditors resigned, the Company shocked the market when it issued a press release announcing its intention to restate its previously issued financial statements filed on Form 10-K for the years ended December 31, 2003, 2002 and 2001 and filed on Form 10-Q for the quarterly periods beginning January 1, 2001 to date. Upon this shocking news, shares of the Company's stock fell an additional $0.52 per share or almost 32% to close at $1.13 per share, on unusually heavy trading volume. Prior to the disclosure of these adverse facts, defendants Valluripalli and Visco sold their personally-held Intelligroup stock to the unsuspecting public thereby reaping almost $3 million in illicit proceeds.