According to the Final Order of Dismissal with Prejudice signed by U.S. District Judge William P. Dimitrouleas and entered on December 2, 2005, the joint motion for approval of the settlement agreement was granted and the case was dismissed with prejudice. The case is closed.
In a press release dated November 29, 2005, Spectrum Sciences & Software Holdings Corp. announced today that the U.S. Securities and Exchange Commission (SEC) has ended its informal inquiry into the company. Spectrum Holdings also announced that two separate legal claims related to the company have been resolved. The SEC inquiry, which began in April 2004, focused on certain trading and promotional activity by an outside consultant related to the market for Spectrum Holdings stock. In an unrelated action, a resolution of a legal complaint filed by Todd Augenbaum against Robert Genovese, Endeavor Capital Group, LLC, and BG Capital Group, Ltd. has been agreed to by all parties. The July 2004 complaint sought to recover "short-swing profits" alleged to have been unlawfully obtained by Mr. Genovese and his affiliated companies in violation of Section 16(b) of the Securities Exchange Act of 1934. The transactions involved the sale of Spectrum Holdings stock. Spectrum Holdings was named as a nominal defendant in the action, but had no liability for the asserted claims. The Stipulation and Agreement of Compromise, Settlement and Release agreed to by the parties is subject to court approval.
According to the Joint Motion for Approval of Settlement Agreement filed on November 23, 2005, after extensive arm’s length negotiations, the parties have entered into a Stipulation and Agreement of Compromise, Settlement and Release subject to the Court’s approval. According to the terms of the Settlement Agreement, the defendants BG Capital Group Ltd. and Genovese will pay $3.25 million in full satisfaction of the Section 16(b) claims
As summarized by the same joint motion, pursuant to the Court’s Order dated August 30, 2005, the individual defendant, Robert Genovese, was dismissed from the case without prejudice. On or about November 4, 2005, plaintiff commenced a second action against Genovese. On November 7, 2005, Judge Kenneth A. Marra entered an order transferring the second action to this Court due to the similar nature of the claims.
On October 18, 2004, the plaintiff filed an Amended Complaint, and on November 12, 2004, the defendants filed a motion to dismiss the Amended Complaint. On January 10, 2005, the Court entered the Order denying the motion to dismiss the Amended Complaint. On March 21, 2005, the jury trial was set for February 13, 2006, and the case was referred to mediation.
The action is brought pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, to obtain disgorgement of short-swing insider trading profits realized by the defendants: one of the Company’s officers and directors, Endeavor Capital Group, LLC and BG Capital Group Ltd., statutory insiders of Spectrum Sciences and Software Holdings Corp.
Defendants beneficially owned more than 10% of the outstanding common stock of Spectrum. In addition, a certain Individual Defendant acted as an officer and director of the Company. Therefore, the Company’s officer and director was a statutory insider of Spectrum, and, as such, is presumed to have had access to material non-public information concerning Spectrum's operations and future business prospects. Section 16(b) seeks to prevent market manipulation by requiring such insiders to disgorge any profits they earn through short-swing insider trading (i.e., purchases and sales within a six month period). Section 16(b) is a strict liability claim concerned with the potential for the misuse of inside information rather than the actual misuse of such information.