Several purported shareholder class action lawsuits have been filed alleging that BearingPoint and certain of its present and former officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing numerous positive statements throughout the Class Period regarding the Company's financial performance. As alleged in the complaint, these statements were each materially false and misleading when made as they failed to disclose and misrepresented the following material adverse facts which were then known to defendants or recklessly disregarded by them: (1) that the Company had materially overstated its net income and earnings per share and undervalued its identifiable intangibles (goodwill) by approximately $250-400 million; (2) that the Company had inflated its earnings by improperly accounting for restructuring charges relating to acquisitions; (3) that the Company's financial statements were not prepared in accordance with Generally Accepted Accounting Principles ("GAAP"); (4) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (5) that as a result, the value of the Company's net income and financial results were materially overstated at all relevant times.
The complaint further alleges that on or around March 17, 2005, BearingPoint announced that it was delaying the filing of its annual report on Form 10-K. According to BearingPoint, it had experienced significant delays in completing its consolidated financial statements. The delays are due, in part, to: (a) Additional substantive procedures necessary to validate financial information due to control deficiencies; (b) The need to confirm the financial information generated by the Company's new financial accounting system, particularly in the area of revenue recognition; and (c) The Company's simultaneous, ongoing efforts to complete management's assessment of its internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
Then on April 20, 2005, BearingPoint filed a current report on Form 8-K. Therein, the Company disclosed that it found errors in its financial statements spanning the past two years, that the SEC had begun an investigation into its accounting, and that it had fired nine executives. More specifically, the Company stated: During the fourth quarter of the fiscal year ended December 31, 2004 ("FY04"), BearingPoint determined that a triggering event had occurred, which caused the Company to perform a goodwill impairment test. The triggering event resulted from a combination of various factors, including downgrades in the Company's credit rating in December 2004, significant changes in senior management and underperforming foreign legal entities. As a result of an initial impairment analysis, on March 17, 2005, the Company determined that a material, non-cash charge will be taken duringthe fourth quarter of FY04 as a result of the impairment of its goodwill with respect to the operations in its Europe, the Middle East and Africa ("EMEA") segment. The Company currently estimated that the amount of the impairment charge will be $250 million to $400 million.
BearingPoint also stated that the following previously issued reports should not be relied upon because of errors in those financial statements: (a)Form 10-Q's for each of the first three quarters of FY04; (b) Form 10-K for the six-month transition period ended December 31, 2003; and (c) Form 10-K for the fiscal year ended June 30, 2003.
On news of this, shares of BearingPoint tumbled more than $2.25 per share on unusually high trading volume.
According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2008, in and after April 2005, various separate complaints were filed in the U.S. District Court for the Eastern District of Virginia alleging that the Company and certain of its current and former officers and directors violated Section 10(b) of the Exchange Act, Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by, among other things, making materially misleading statements between August 14, 2003 and April 20, 2005 with respect to its financial results in the Company’s SEC filings and press releases. On January 17, 2006, the court certified a class, appointed class counsel and appointed a class representative. The plaintiffs filed an amended complaint on March 10, 2006 and the defendants, including the Company, subsequently filed a motion to dismiss that complaint, which was fully briefed and heard on May 5, 2006. The Company was awaiting a ruling when, on March 23, 2007, the court stayed the case, pending the U.S. Supreme Court’s decision in the case of Makor Issues & Rights, Ltd v. Tellabs, argued before the Supreme Court on March 28, 2007. On June 21, 2007, the Supreme Court issued its opinion in the Tellabs case, holding that to plead a strong inference of a defendant’s fraudulent intent under the applicable federal securities laws, a plaintiff must demonstrate that such an inference is not merely reasonable, but cogent and at least as compelling as any opposing inference of non-fraudulent intent. The court ordered both parties to submit briefs regarding the impact of Tellabs upon the defendants’ motion to dismiss. The parties filed their briefs on July 16, 2007, and oral arguments were held on July 27, 2007. On September 12, 2007, the court dismissed with prejudice this complaint, granting motions to dismiss filed by the Company and the other named defendants. In granting the Company’s motion to dismiss, the court ruled that the plaintiff failed to meet the scienter pleading requirements set forth in the Private Securities Litigation Reform Act of 1995, as amended. On September 26, 2007, the plaintiffs filed a motion that seeks a reversal of the court’s order dismissing the case or an amendment to the court’s order that would allow the plaintiffs to replead. The Company filed its brief on October 17, 2007 and although a hearing on the plaintiffs’ motion was scheduled for November 16, 2007, the court canceled the hearing as not necessary. On November 19, 2007, the court issued an order denying the plaintiffs’ motion to amend or alter the court’s September 12, 2007 dismissal of this matter. The plaintiffs have appealed the matter to the U.S. Court of Appeals for the Fourth Circuit.
On July 31, 2009, the Court entered the Judgment from the U.S. Court of Appeals. According to the Judgment, in accordance with the decision of this court, the District Court's order is reversed and the judgment is vacated. This case is remanded to the District Court for further proceedings consistent to the Court's decision. This judgment shall take effect upon issuance of this court's mandate in accordance with FRAP. 41.
On April 22, 2010, a Notice of Settlement was filed, and on June 11, 2010, the plaintiffs filed a motion for preliminary approval of the class action settlement. On June 24, 2010, the $7.5 million cash settlement was preliminarily approved. On September 28, 2010, the final settlement hearing was held before District Judge Liam O'Grady. The Lead Plaintiff's petition for final approval of attorneys' fees and reimbursement of litigation expenses was granted, and the settlement was approved. The action is now dismissed with prejudice.