On September 27, 2007, the Court entered the Memorandum and Order granting the Defendants’ motion to dismiss the First Amended Consolidated Complaint as to two Individual Defendants. Further, according to the Order, the Lead Plaintiffs are granted leave to amend the Section 10(b) and Section 20(a) claims by Remaining Plaintiffs within 45 days of the date of this Order. On September 28, 2007, the Court entered the Order which stated that on June 22, 2007, the parties informed the Court that they had reached an agreement to settle to the litigation and expected to forward preliminary approval papers within 60 days of that date. In that letter the Defendants agreed to withdraw their Motion to Dismiss without prejudice.
On September 29, 2006, the plaintiffs filed a First Amended Consolidated Class Action Complaint was filed. On November 28, 2006, the Defendants filed a motion to dismiss the First Amended Consolidated Class Action Complaint.
According to the Company’s FORM 20-F for the fiscal year ended December 31, 2005, since April 7, 2005, various claims made by the Companys’ shareholders have been filed—some of which are ERISA(1) claims made by company employee shareholders based on claims for, among other things, breach of fiduciary duty—against the Company as well as against some of its Board members and managers, in federal court in the Southern District of New York and the District of New Jersey. The U.S. judicial panel on multidistrict litigation decided on October 21, 2005 to combine these claims into a single case under the jurisdiction of the Southern District of New York. Generally, the plaintiffs are accusing the defendants of breaching certain provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, particularly in relation to releasing financial information between April 26, 2001 and March 23 or 24, 2005. The certification procedures should begin shortly and may lead to a consolidated class action suit.
The original complaint charges Rhodia and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Rhodia develops, manufactures and markets chemical products.
Specifically, the complaint alleges that during the Class Period, defendants engaged in a scheme to overstate Rhodia's reported financial results by failing to record impairment on a timely basis in order to: (i) protect and enhance their executive positions and substantial compensation; (ii) raise EUR 1 billion in Notes in a private placement on May 28, 2003, as well as EUR 290 million in a private placement of Notes with American investors in 2001; and (iii) enhance the value of their personal Rhodia securities holdings and options. The true facts, which were known to the defendants during the Class Period but concealed from shareholders, were as follows: (i) Rhodia was carrying an overvalued asset on its books in the form of its ChiRex unit which was impaired and should have been written down in a timely fashion but was not; (ii) Rhodia failed to write down its deferred tax assets to recoverable values in 2002 and failed to do so in 2003 until the end of the year; (iii) the Company failed to properly report its outstanding debt; and (iv) the Company failed to include disclosures to make it possible for investors to understand the trends in its business. As a result of Rhodia's false statements, its securities traded at artificially inflated levels during the Class Period.
The complaint further alleges that on or around March 23, 2004, it was revealed that French securities regulators were conducting an inquiry into the Company's financial reporting. Following this news, Rhodia's stock collapsed to below $1.50 per share. Subsequently, in March 2005, it was reported that France's stock market regulator had found that the Company had failed to disclose important information in a timely fashion beginning in 2001.