According to a press release dated March 16, 2005, the law firm Chitwood & Harley LLP announces that it has dismissed without prejudice the securities fraud class action complaint against EchoStar Communications Corporation and certain of its directors and officers. No class had been certified in this case before its dismissal.
The complaint charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of materially false and misleading statements to the market concerning EchoStar's results of operation. More specifically, the Complaint alleges that the Company's Class Period financial statements and disclosures were materially false and misleading and in violation of Generally Accepted Accounting Principles ("GAAP") because, among other things: (1) the Company lacked internal controls adequate to ensure that the information contained in the Company's financial reports fairly presented in all material respects, the financial condition and results of operations of the Company; and (2) the Company improperly booked certain transactions with vendors and engaged in improper accounting.
The truth began to emerge on or about March 10, 2005 when the market learned that EchoStar's audit committee had launched an internal accounting probe and that the Company and the Company's Chief Executive Officer were the subjects of an SEC inquiry. According to a March 10, 2005 Reuters article, the probe relates to the booking of transactions with suppliers and consulting payments to a friend of the Chief Executive Officer. Bloomberg reported that the probe by EchoStar's audit committee was prompted by KPMG's audit of the Company and that the SEC inquiry concerns the Chief Executive Officer’s role in to the Company's accounting. Bloomberg cited unnamed sources familiar with the internal investigation who claimed that the investigation had uncovered "evidence," including "company records that showed the Chief Executive Officer may have directed or authorized vendor transactions and consulting payments to an unidentified friend." The Bloomberg article also noted that since July 2004, the SEC has been examining the way EchoStar and other companies in the telecommunications industry account for subscribers. During the Class Period, several of the Individual Defendants and other officers and/or directors of EchoStar engaged in massive insider trading, which Ft.com reported last night regulators are probing.
The complaint further alleges that following the March 10, 2005 disclosure, the market price of EchoStar's common stock dropped from a high of $34.38 per share during the Class Period to as low as $28.20 per share on March 10, 2005, the lowest price at which EchoStar has traded since August 2004. Trading in EchoStar common stock on March 10, 2005 exceeded 15 million shares, which is nearly eight times the average daily trading volume for DISH common stock for the previous three months of 1.876 million shares.