The original complaint alleges that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Specifically, the complaint alleges that Defendants failed to disclose that at the time of its analyst conference call on April 5, 2005, which was purportedly to discuss the impact of expensing options under SFAS 123R, (1) the Company was experiencing significant operational issues in multiple areas of its business. In particular, the Company had been unable to close significant transactions late in the first quarter, it was experiencing elongated sales cycles, and was having product-transition problems in its hardware segment. (2) The Company intentionally accelerated the adoption of SFAS 123R, despite having an additional two quarters to implement it, in order to sufficiently lower analyst expectations so that when it later disclosed the operational issues and reported earnings from continuing operations of $0.85 per share for the first quarter 2005, it would have the effect of cushioning the blow of the significant earnings miss. (3) The Company intentionally misrepresented the impact from expensing options, indicating an earnings impact of $0.14 per share on April 5, 2005 (versus the actual impact of $0.10 per share reported on April 14, 2005), in order to disguise a significant and material operating miss.
The complainy further alleges that on April 14, 2005, IBM reported first quarter 2005 financial results. The Company posted net income of $1.4 billion, or $0.84 per share, which represented an additional miss of $0.06 per share, undisclosed nine days earlier. The Company also revealed that the miss was significantly attributable to operations, rather than wholly attributable to SFAS 123R, as the Company had previously indicated. Shares reacted negatively to the news, falling from $83.64 per share on April 14, 2005, to $76.70 per share on April 15, 2005. Before the markets opened on evening, April 18, 2005, the Wall Street Journal published an article characterizing IBM's April 5, 2005 announcement as "clouding" IBM's true financial position, and "cushioning the blow" of its earnings miss. On May 4, 2005, IBM announced that it would be reducing its workforce by 10,000 to 13,000 employees. On June 27, 2005, the Company announced that the SEC had begun an informal investigation into the Company's statements regarding the earnings miss.
According to the Company’s FORM 10-Q For The Quarter Ended September 30, 2006, in July 2005, two lawsuits were filed in the United States District Court for the Southern District of New York related to the company’s disclosures concerning first-quarter 2005 earnings and the expensing of equity compensation. On September 6, 2005, counsel in one of these lawsuits filed a motion seeking to have the lawsuits consolidated, and for the appointment of lead plaintiff and lead counsel. Pursuant to an Order from the Court dated March 28, 2006, the two lawsuits were consolidated into a single action captioned “In re International Business Machines Corp. Securities Litigation.” Pursuant to a schedule set by the Court, Plaintiffs served on the company an Amended Consolidated Complaint on May 19, 2006. IBM filed a Motion to Dismiss the Amended Consolidated Complaint on June 23, 2006. Plaintiffs filed their response to IBM’s Motion on July 21, 2006; and IBM filed its final brief in support of its Motion on August 2, 2006. On September 20, 2006, the Court denied IBM’s Motion to Dismiss.
On January 16, 2007, the Plaintiffs filed a motion to certify the class. On March 14, 2007, the Court issued the Order certifying the class.
According to an article released on June 2, 2008, IBM Corp. has agreed to settle the class action for $20 million in exchange for dismissal of all claims. The received preliminary approval on May 30, 2008 and is scheduled for a fairness hearing Sept. 9, according to court documents. Despite the settlement, IBM disputed that it had made any representation to investors and denied all allegations of wrongdoing, according to a joint statement from the company and law firms Labaton Sucharow LLP and Klafter & Olsen LLP.
On September 10, 2008, Judge Alvin K. Hellerstein approved the settlement, approved the plan of allocation and awarded attorneys’ fees and expenses. The Judgment and Order of Dismissal was also entered that day.