The complaint alleges defendants artificially inflated the price of Allegiance Telecom stock by disseminating materially misleading statements concerning the Company’s business operations and financial performance. Specifically, the complaint alleges defendants accomplished this by issuing materially misleading public statements concerning the number of “installed” lines the Company was operating. Also, despite known inconsistencies in the Company’s order management system and billing databases, defendants touted the Company’s back-office operations, which were used to generate the Company’s “core operating and financial data.” Moreover, defendants artificially inflated Allegiance Telecom’s revenue by continuing to bill customers who had churned off/canceled Allegiance Telecom services. Additionally, the Company’s quarterly earnings reports filed with the SEC on Forms 10-Q during the Class Period were also materially misleading as they repeated the misleading revenue and line count figures published in Allegiance Telecom’s press releases and failed to disclose that during the periods being reported the number of phone lines “installed,” i.e., those lines sold that were being used to provide services, were materially overstated.
The complaint further alleges the Company’s actual line count was revealed on or around February 19, 2002, when defendants shocked the market by revising the number of Allegiance Telecom’s “installed” phone lines downward by approximately 125,000 – and approximately 14% downward adjustment – causing the price of Allegiance Telecom shares to fall 28% on February 20, 2002.
NOTE: Allegiance Telecom is no longer named a defendant because the Company filed for bankruptcy protection on May 14, 2003, under Chapter 11 of the United States Bankruptcy Code.
On February 9, 2004, the Court entered the Order granting the motion for appointment of lead plaintiff and approval of lead plaintiffs’ selection of lead counsel. On March 26, 2004, the plaintiffs filed an Amended Class Action Complaint, and the defendants filed a motion to dismiss the Amended Complaint. On June 14, 2004, the Court entered the Memorandum Opinion and Order granted in part and denied in part the defendants’ motion to dismiss the Amended Complaint. On October 5, 2004, the plaintiffs’ filed a motion for class certification, which was granted in the Memorandum Opinion and Order entered on April 15, 2005.
The defendants filed a Notice of Appeal as to the Memorandum Opinion and Order granting class certification. On June 22, 2007, the Court entered the certified copy of the Opinion from the U.S. Court of Appeals for the Fifth Circuit. According to the Opinion, it is ordered and adjudged that the judgment of the District Court is vacated, and the cause is remanded to the District Court for further proceedings in accordance with the opinion of this Court. The case was reopened.
After being remanded back to the lower court, on October 23, 2007, defendants filed a motion to dismiss for lack of standing, which was ultimately denied on May 14, 2008. The action is currently in discovery phase.
On May 12, 2010, Judge Ed Kinkeade denied the Plaintiffs' motion for class certification. On May 24, 2010, the plaintiff filed a motion for reconsideration of that order, which was denied on June 29, 2010.
On August 31, 2010, the case was ordered reopened and the case was transferred to a new judge, Magistrate Judge Irma C. Ramirez to conduct all further proceedings and the entry of judgment. On November 22, 2010, a settlement conference was held and the parties attempted to settle the case, but the parties did not reach a settlement. On January 14, 2011, the parties agreed to settle the action and dismissed the action with prejudice. Final Judgment was entered on January 18, 2011, and the case is now closed.