Investors Financial Services Corp. ("IFIN" or the Company) operates as a bank holding company for Investors Bank & Trust Company that provides asset managers with services including global custody, multi-currency accounting and mutual fund administration in the United States.
The original Complaint alleges that Defendants caused IFIN shares to trade at artificially inflated levels through the issuance of false and misleading financial statements and guidance. The Company's statements served to convince investors that the Company's financial statements were accurate, including results for revenues, growth and interest income, and the Company had shrewdly built into its models and assumptions the impact of continued interest rate compression and flattening of the US interest rate yield curve.
In October 2004, the Company surprised the market when they finally revealed the need to restate financial results over a three-year period. On October 21, 2004, the price of IFIN stock plummeted, from its previous close of $43.70 to $36.50, on volume of over 11 million shares. Later, the Company revealed that during the period from 2001 to 2004, Investors had overstated net interest income by as much as $6.2 million.
The Complaint further alleges that on or around July 14, 2005, IFIN dropped 15% after the Company slashed earnings guidance, citing interest rate pressure. Once again, the Company announced an unprecedented "reset" of their 2005 quarterly and 2005 yearly guidance. Defendants did this, allegedly, to bring their numbers in line with the "new" realities of market-driven rates and rate spreads. The Complaint alleges further that IFIN's assertions that an interest rate event peculiar to the second quarter served as the purported "trigger" for the Company's changed circumstances. This was false. In fact, the Complaint alleges, the change in the Company's fortunes was a direct result of the dramatic flattening of the yield curve and contraction of rate spreads. The Company cited a flatter-than-expected yield curve; narrower-than-expected reinvestment spreads; weaker-than-expected market-sensitive revenues, which included fees, linked to both the equity and foreign currency markets; and continued investments in headcount and technology to support new and existing clients.
On July 15, 2005, the price of IFIN shares plummeted from its previous close of $41.52 to $34.05 for a loss 17.9% percent of their value on unprecedented volume of over 22 million shares. The Class Period high was $53.44; it then traded under $35 per share.
According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2006, the U.S. District Court has consolidated three purported class action Complaints and appointed a lead Plaintiff, who filed a consolidated Complaint against the Company and seven of its current and former officers on February 3, 2006. Among other things, the consolidated Complaint asserts that the Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 during the period April 10, 2001 until July 15, 2005. The allegations in the consolidated Complaint predominantly relate to: (1) the Company’s October 2004 restatement of its financial results, and (2) the Company’s July 2005 revision of public guidance regarding its future financial performance. The consolidated Complaint seeks unspecified damages, interest, fees, and costs. On May 14, 2006, the Company filed a motion to dismiss all claims asserted in the consolidated Complaint.
On July 31, 2007, the Court entered the Order dismissing the Complaint without prejudice. On October 30, 2007, the Plaintiffs filed a First Amended Consolidated Complaint, and on January 11, 2008, the Defendants responded by filing a motion to dismiss the First Amended Consolidated Complaint.
According to the docket, the Magistrate Judge entered a Reports and Recommendation to the court stating the case should be dismissed with prejudice on January 13, 2009. On March 19, 2009 the judge entered a Final Order dismissing the case with prejudice and closing the docket.
