According to a press release dated March 24, 2008, iMergent, Inc. (AMEX:IIG), a leading provider of eCommerce software for small businesses and entrepreneurs, announced the U.S. District Court for the District of Utah approved the settlement of all claims related to a consolidated class action litigation against the company filed on March 8, 2005 and subsequently certified a class action by the U.S. District Court for the District of Utah. The Court approved the terms of a memorandum of understanding entered on September 19, 2007. The Order of Approval of Plans of Allocation of Settlement Proceeds and Final Approval Order and Judgment settlement provide for the following: (i) iMergent, through its directors and officers (D&O) insurance policy, will pay $2.8 million to the class plaintiffs; (ii) A provision dismissing the company and individual defendants from the litigation with prejudice; (iii) A provision that bars and enjoins Grant Thornton from prosecuting any claims against the company and individual defendants arising out of, based upon or related to the facts alleged in the complaint or that could have been alleged in the litigation; (iv) The company and individual defendants assign to the plaintiffs any and all claims or causes of action that they now have against Grant Thornton, including, but not limited to, any claims or causes of action for accounting malpractice or breach of contract; (v) The company and individual defendants shall cooperate with the plaintiffs in the continuing prosecution of the litigation against Grant Thornton; and (vi) The company is required to provide documentary evidence supporting the claims against Grant Thornton to the plaintiffs. This settlement will not impact the company's operating results.
iMergent, Inc. announced preliminary approval of a settlement agreement between the company and all derivative litigation filed in various courts in Utah. Under the terms of the settlement, iMergent is to receive a payment of $3.3 million in insurance proceeds. The funds will be used to pay $2.8 million for the settlement of the class action settlement, discussed in Form 8-K filed by the company on September 21, 2007, and $500,000 for attorney fees to derivative counsel. The settlement also calls for the company to adopt certain corporate governance measures as well as present certain items to a vote of the company' s shareholders. After final approval of the settlement and court approval of the class action settlement, the items that require a vote of the shareholders will be included in the next scheduled annual proxy statement. Additionally, after final approval of the settlement and court approval of the class action settlement, all corporate governance items not requiring approval of the company' s shareholders, which have not already been adopted, will be adopted by the company. Additional settlement terms have been filed in a Form 8-K with the Securities and Exchange Commission.
According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2006, on March 8, 2005, an action was filed by Elliott Firestone, on behalf of himself and all others similarly situated, against the Company, certain current and former officers, and certain current and former directors, in the U.S. District Court for the District of Utah Civil No. 2:05cv00204 DB. Additional complaints were then filed against the Company alleging similar claims. The court ordered that the cases be consolidated, and on November 23, 2005, allowed a “consolidated amended complaint for violation of federal securities laws” against the Company, certain current and former officers, and certain current and former directors, together with the former independent auditors for the Company, Grant Thornton LLP, as defendants. The amended consolidated complaint alleges violations of federal securities laws claiming that the defendants either made or were responsible for making material misleading statements and omissions, providing inaccurate financial information, and failing to make proper disclosures which required the Company to restate its financial results. The suit seeks unspecified damages, including attorneys’ fees and costs. Although this action was determined by the court to be the “consolidated action”, a complaint was filed in October 2005 by Hillel Hyman on behalf of himself and all others similarly situated against the Company, certain current and former officers, certain current and former directors, and Grant Thornton LLP. This group in subsequent filings refers to itself as the “accounting restatement group” and alleges that it should be determined by the court to be the consolidated plaintiff as it properly alleges a class period consistent with timing necessary to raise a claim based upon the restatement of financial results announced by the Company. The complaint alleges violations of federal securities laws by the Company and Grant Thornton LLP. The Company disputes the allegations raised in both actions, but has not filed substantive responsive pleadings to the actions. On February 28, 2006, at a “Status Conference” the court determined that the complaint filed by the accounting restatement group should be substituted as the new consolidated amended complaint. On April 3, 2006, the court entered a consent order substituting Mr. Hyman as the lead plaintiff. The discovery stay imposed under applicable federal law, which controls the administration of class actions, remains in place. There has been no amended complaint filed to date.
The complaint charges iMergent and certain of its officers and directors with violations of the Securities Exchange Act of 1934. iMergent sells Internet merchant services through its StoresOnline, Inc. subsidiary. Through its subsidiary, iMergent mass markets storefront software and service packages through marketing seminars to small businesses to facilitate their online sales.
Specifically, the complaint alleges that throughout the Class Period, iMergent represented to the investment community that it was a successful software company while concealing that its sales practices violated the laws of many of the states it operates in and the full extent of the uncollectibility of its installment contracts with its clients, many of which did not meet the Company's own credit criteria. On February 22, 2005, it was disclosed that the Texas Attorney General had filed suit against iMergent, the Company's Chairman, and the Company's President, alleging the Company's wholly owned subsidiary, StoresOnline.com, was selling defective storefront software and service packages and extorting thousands of dollars in additional "executive mentoring" fees from its customers when they could not use the software packages. In addition, the Company’s Chairman admitted at an investment conference held on February 25, 2005, that iMergent had been selling the software packages in installment contracts to customers with subprime credit. Many of these customers had little or no success with the Company's software and simply walked away from their contractual obligations when their new online "businesses" failed. The Company’s Chairman admitted that in the aggregate, only approximately 56% of the purchase price was eventually collected from these subprime customers through installment contracts.
The complaint further alleges that as a result of defendants' false statements, iMergent's stock traded at inflated levels during the Class Period, increasing to above $25 per share on February 9, 2005, at which time the Company's top officers and directors sold or otherwise disposed of more than $6.5 million worth of their own shares. As the market digested this news, the Company's stock price plummeted from its Class Period high of over $25 per share on February 9, 2005 to below $12 per share on March 1, 2005, when trading was halted.