The complaint charges AuthentiDate and certain of its officers and directors with violations of the Securities Exchange Act of 1934. AuthentiDate provides web-based content authentication services that address the verification of digital information in all business processes.
Specifically, the complaint alleges that during the Class Period, defendants made materially false and misleading statements regarding the Company's business and prospects, specifically about revenues to be derived from an agreement with the U.S. Postal Service. The Company also concealed certain internal control problems. These false statements caused AuthentiDate stock to trade at artificially inflated levels, reaching as high as $18.69 per share in January 2004. Taking advantage of this artificial inflation, AuthentiDate completed a private placement of its stock in February 2004, raising $69 million in net proceeds. AuthentiDate's CFO and former CEO also took advantage of the inflation, selling 156,000 shares of their AuthentiDate stock for proceeds of $1.7 million.
On April 13, 2005, AuthentiDate announced the dismissal of its accounting firm PricewaterhouseCoopers LLP. Later, on April 29, 2005, AuthentiDate filed a Form 8-K with the SEC disclosing it had hired a new accounting firm and also that on April 15, 2005, its CFO had sent a letter to certain members of the Company's Board of Directors, advising them of the existence of corporate governance issues. The Company hired special counsel to investigate the letter.
Then, the complaint further alleges, on or around May 27, 2005, the Company issued a press release announcing that "its ongoing discussions with the United States Postal Service regarding the status of its Strategic Alliance Agreement had reached a critical stage with the receipt of a second notice from the Postal Service stating that it had failed to attain the performance metrics required by the Strategic Alliance Agreement during the period February 2005 through April 2005." On this news, AuthentiDate's stock collapsed to $2.94 per share on volume of 1.28 million shares.
As summarized by the Company’s Form 10-Q For The Quarterly Period Ended March 31, 2009, between June and August 2005, six purported shareholder class actions were filed in the United States District Court for the Southern District of New York against our company and certain of its current and former directors and former officers. Plaintiffs in those actions alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11 and 15 of the Securities Act of 1933. The securities law claims were based on the allegations that we failed to disclose that our August 2002 agreement with the USPS contained certain performance metrics, and that the USPS could cancel the agreement if we did not meet these metrics; that we did not disclose complete and accurate information as to our performance under, and efforts to renegotiate, the USPS agreement; and that when we did disclose that the USPS might cancel the agreement, the market price of our stock declined. On October 5, 2005 the Court consolidated the class actions under the caption In re Authentidate Holding Corp. Securities Litigation., C.A. No. 05 Civ. 5323 (LTS), and appointed the Illinois State Board of Investment as lead plaintiff under the Private Securities Litigation Reform Act. The plaintiff filed an amended consolidated complaint on January 3, 2006, which asserted the same claims as the prior complaints and also alleged that Authentidate violated the federal securities laws by misrepresenting that it possessed certain patentable technology. On July 14, 2006, the Court dismissed the amended complaint in its entirety; certain claims were dismissed with prejudice and plaintiff was given leave to replead those claims which were not dismissed with prejudice. In August 2006, plaintiff filed a second amended complaint, which did not assert any claims relating to the company’s patents or under the Securities Act of 1933, but which otherwise was substantially similar to the prior complaint. The second amended complaint sought unspecified monetary damages. The company moved to dismiss the second amended complaint on November 13, 2006. On March 26, 2009, the company reported that the United States District Court for the Southern District of New York dismissed with prejudice the shareholder class actions filed against us and certain of our current and former directors and former officers. This decision does not directly affect the derivative actions filed against the company as discussed below. On April 24, 2009, the lead plaintiff filed a notice of appeal of the decision of the U.S. District Court for the Southern District of New York with the U.S. Court of Appeals for the Second Circuit.
As summarized by the Company's Form 10-Q For The Quarterly Period Ended March 31, 2011, on March 12, 2010, the U.S. Court of Appeals for the Second Circuit issued an order affirming in part and vacating and remanding in part the March 26, 2009 order of dismissal. On December 23, 2010, the company and certain of its current and former directors and former officers entered into a settlement. As set forth more fully in the Stipulation of Settlement, if the settlement is given final approval by the District Court, among other things: (i) all claims will be dismissed with prejudice and release; and (ii) a payment of $1.9 million will be made for the benefit of the settlement class, which will be funded by the company’s insurance carrier. On February 2, 2011, the District Court entered an order that preliminarily approved the Stipulation of Settlement; preliminarily certified a settlement class of all persons who purchased the company’s common stock between July 16, 2004 and May 27, 2005, inclusive; and scheduled a hearing for July 20, 2011 to determine whether to grant final approval of the settlement.