According to a press release dated July 31, 2007, L-1 Identity Solutions, Inc. (NYSE:ID) today announced that the Company and counsel for the plaintiff class have recently filed a joint motion for preliminary approval of a settlement of Viisage Technology Securities Litigation, Civil Action No. 05-10438-MLW, in the United States District Court for the District of Massachusetts (the "litigation"). The litigation is the consolidation of a number of class action complaints filed against Viisage Technology, Inc. (now named L-1 Identity Solutions Operating Company) and certain of its former officers and directors in March and April 2005. The putative class consists of the purchasers of Viisage stock during the period May 12, 2004 through March 2, 2005. On February 27, 2007, the Court issued an order dismissing the majority of the claims asserted in the litigation, but permitting certain claims to proceed. This settlement, which is subject to among other things preliminary and final Court approval, would resolve all the remaining claims in the litigation. Without admitting any liability or wrongdoing of any kind, the Company has agreed to authorize payment to the plaintiff class of $2.3 million. This settlement payment would be funded by the Company's insurer. Because the litigation is a class action, the settlement is subject to the preliminary approval of the Court as well as the Court's final approval after notice of the terms of the settlement has been provided to all class members.
According to the Company’s FORM 10-Q For the Quarterly Period Ended September 30, 2006, in March and April 2005, eight putative class action lawsuits were filed in the United States District Court for the District of Massachusetts. These lawsuits have been consolidated into one action under one case name: In re: Viisage Technology Securities Litigation, Civil Action No. 05-10438-MLW. The so-called Turnberry Group has been designated as lead plaintiff and its counsel has been designated as lead counsel. The amended consolidated complaint which was filed in February 2006 alleges violations of the federal securities laws by Viisage (now named L-1 Identity Solutions, Inc.) and certain officers and directors arising out of purported misstatements and omissions in Viisage’s SEC filings related to certain litigation involving the Georgia drivers’ license contract and related to the Viisage’s reported material weaknesses in internal controls over financial reporting, which allegedly artificially inflated the price of the Company’s stock during the period May 12, 2004 through March 2, 2005. In April 2006, the Company filed a motion to dismiss this case.
The original Complaint alleges Viisage was forced to borrow funds from its controlling shareholder, and was in dire need of a credit line adequate to finance its ongoing business needs. In order to secure such credit, the defendants engaged in a scheme to artificially engineer a profit in the third quarter of 2004 (ending Sept. 26, 2004), and made earnings projections known by them to be baseless and unsupportable. The third quarter profit, which was reported on October 25, 2004, was only made possible through various accounting manipulations, whereby certain assets were prematurely recognized, while certain expenses were artificially deferred from the third quarter of 2004 into the fourth quarter of 2004.
The complaint further alleges that after obtaining the desired credit line, the defendants waited until February 27, 2005 to shock investors with the news of numerous fourth quarter charges and a significant asset impairment, all of which returned Viisage to substantial unprofitability. This news caused Viisage stock to drop over 20% on heavy trading. Then, on or around March 2, 2005, defendants again shocked the market by announcing a "material weakness" in its internal financial controls, and that "management will be unable to conclude that the Company's internal controls over financial reporting are effective as of December 31, 2004. Therefore, BDO Seidman LLP, the Company's external accounting firm, will issue an adverse opinion with respect to the effectiveness of the Company's internal controls over financial reporting." As a result of this news, the stock dropped another 20%, closing on March 3, 2005 at $4.50 per share, down from almost $7 per share at the commencement of the Class Period.