The original complaint alleges that the Company and certain of its officers and directors, violated federal securities laws. Specifically, defendants issued false statements concerning strong existing demand for StarTek's outsourced services from four of the Company's customers that accounted for 90% of StarTek's revenue, the Company's healthy sales pipeline and the completion of a management transition and restructuring plan, which artificially inflated StarTek's stock price during the Class Period. On May 6, 2005, StarTek announced that its first quarter 2005 earnings per share from continuing operations decreased to $0.18 compared to $0.49 for the first quarter of 2004. The Company also announced that its revenues declined 14.2% from the same period in 2004. On this news, StarTek's stock price fell over 18% from a close of $15.20 on May 5, 2005 to $12.40 on May 6, 2005.
Two stockholder derivative lawsuits related to these aforementioned claims were also filed against various of our present and former officers and directors on November 16, 2005, and December 22, 2005, alleging breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment.
The consolidated complaint, filed on March 24, 2006 alleges that the defendants made false and misleading public statements about their business and prospects in the prospectus for the secondary offering, as well as in filings with the SEC and in press releases issued during the Class Period, and that the market price of StarTek's common stock was artificially inflated as a result. The complaint alleges claims under Sections 11 and 15 of the Securities Act of 1933, and under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The plaintiffs seek compensatory damages on behalf of the alleged class and award of attorneys’ fees and costs of litigation. On May 23, 2006, StarTek and the individual defendants moved the court to dismiss the action in its entirety.
Defendants filed for a motion to dismiss, which was granted in part on March 28, 2008. The judge dismissed the first and second claims, but denied defendants' attempt to dismiss the third and fourth claims. On May 19, 2008 a Second Consolidated Complaint was filed correcting deficiencies in the original complaint.
According to a press release dated September 22, 2008, StarTek, Inc., and certain of its current and former officers are seeking the dismissal of the amended complaint in a consolidated securities fraud class-action lawsuit filed against them in the U.S. District Court for the District of Colorado.
On November 6, 2008, the judge entered an order dismissing in part plaintiffs claims against the Company. In his order the judge stated, "Any delay in disclosing the loss of income from Microsoft does not give rise to liability because the facts were disclosed and no losses resulted from any alleged misrepresentation, false statement, or omission regarding this aspect of StarTek’s business." However, the judge refused to dismiss all other claims. Defendants answered the complaint on November 18, 2008, and the parties soon after engaged in discovery.
On September 3, 2009, the lead plaintiffs filed a motion for order to preliminarily approve class action settlement. The lead plaintiffs filed a Stipulation of Settlement. The proposed settlement is in the amount of $7,500,000 in cash. On October 22, 2009, Judge Walker D. Miller preliminarily approved the settlement. The Settlement Hearing was set for December 17, 2009. On December 31, 2009, the Court entered the Order signed by Judge Walker D. Miller approving the settlement and dismissing all claims with prejudice. Judge Miller also awarded attorney fees of 25% of the settlement, together with interest thereon until paid, and expenses in the amount of $327,564.74.