According to a press release dated January 24, 2007, Arbinet-thexchange, Inc. announced that following a ruling in Arbinet's favor from the United States District Court for the District of New Jersey, the parties in the action entitled In re Arbinet-thexchange, Inc. Securities Litigation, C.A. No. 05-CV-04444-JLL_RJH (D. N.J.) have dismissed the previously disclosed class action claims pending against the Company and certain of its officers, current and former directors, and the underwriters for Arbinet's initial public offering.
In an article dated January 5, 2007, the court grants defendant's motion to dismiss the class-action complaint filed by the lead plaintiff, Schwartz, and the plaintiff, Louisiana School Employees' Retirement System, alleging violations of §§ 11, 12 and 15 of the Securities Act of 1933 in connection with the registration statements made in defendant's issuance of an initial public offering. In accordance with the IPO, defendant Arbinet issued a registration statement and prospectus (the 'Offering Materials') detailing, among other things, historical facts about the company, its goals and the risks inherent in investing in Arbinet. In particular, Arbinet warned investors that the company has 'incurred significant losses since its inception' and that investment in Arbinet stock 'involves a high degree of risk.' Nevertheless, plaintiffs seek to link the subsequent drop in stock price, precipitated by the revised revenue projections, to material omissions in the offering materials. Plaintiffs argue that 'in the weeks and months preceding the IPO,' Arbinet knew of various adverse trends that could have a future impact on the company's revenues, yet failed to disclose such trends and their potential effects in the offering materials. The court finds that the statements in question are not actionable, and merely state the obvious. Inter alia, a reasonable investor would understand, based on the information disclosed in the offering materials, as well as the admittedly public information on the average duration of wireless calls, that an increase in wireless calling could lead to a decrease in Arbinet's revenues. Further, none of the statements cited by plaintiffs are rendered misleading by the omission of the purported problems carriers faced in integrating the Arbinet exchange with their existing infrastructures. [Filed Dec. 28, 2006.]
On August 29, 2006, the Court entered the Order consolidating 05-CV-4444 with 05-CV-4404. The civil case 05-CV-4444 was terminated.
According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2006, on February 17, 2006, the Consolidated and Amended Complaint [in case number 05-CV-4444] was filed with the court. The Amended Complaint continues to allege violations of the registration and anti-fraud provisions of the federal securities laws due to alleged statements in and omissions from Arbinet’s initial public offering registration statement. The Amended Complaint seeks, among other things, unspecified damages and costs associated with the litigation. On April 28, 2006, the Company filed a motion to dismiss the Amended Complaint, based on the argument that there are no false or misleading statements and no material omissions in the initial public offering registration statement. On June 30, 2006, the Lead Plaintiff filed her opposition to the Company’s motion to dismiss. On September 13, 2006, the Company filed its reply brief in support of the motion to dismiss.
As disclosed by the same SEC filing, during the period August 11, 2005 through September 26, 2005, the Company was named as a defendant in four purported securities class action lawsuits that were filed in the state and federal courts in New Jersey against the Company and certain of its officers, current and former directors and the underwriters for the Company’s initial public offering: Jonathan Crowell v. Arbinet-thexchange, Inc., et al., MID-L-5874-05 (N.J. Sup. Ct.); Harish Grover v. Arbinet-thexchange, Inc., et al., C.A. No. 05-CV-04404 (D. N.J.); Sandra Schwartz v. Arbinet-thexchange, Inc., et al., C.A. No. 05-CV-04444 (D. N.J.); and James Bendrick v. Arbinet-thexchange, Inc., et al., C.A. No. 05-CV-04664 (D. N.J.). On September 27, 2005 defendants removed the Crowell action to United States District Court for the District of New Jersey, where it has been docketed as Jonathan Crowell v. Arbinet-thexchange, Inc., et al., C.A. No. 05-CV-4697. On December 6, 2005, Sandra Schwartz was appointed Lead Plaintiff in the class action securities litigation. The separate securities class action lawsuits that were filed in the federal courts in New Jersey were consolidated into the action entitled In re Arbinet-thexchange, Inc. Securities Litigation, C.A. No. 05-CV-04444-JLL_RJH (D. N.J.)
The original complaint charges Arbinet and certain of its officers, directors and underwriters with violations of the Securities Act of 1933. Arbinet is the leading electronic market for trading, routing and settling communications capacity.
The complaint alleges that, in connection with the Company’s IPO, defendants issued a materially false and misleading Registration Statement and Prospectus (the “Registration Statement”). Specifically, the Registration Statement failed to adequately disclose and misrepresented material information concerning, among other things: (i) the negative impact that certain factors, including, but not limited to, increases in wireless calls and shifts in the geographic market usage mix, would have on Arbinet’s revenues and profits; (ii) the relevance of certain statistical data; and (iii) certain other material risks the Company faced which would negatively impact its future growth and revenues.
The complaint further alleges that on or around May 4, 2005, Arbinet announced its results for the first quarter of 2005, the three months ended March 31, 2005 and reported that its results were “flat” compared to the fourth quarter of 2004. Then, on June 21, 2005, Arbinet forecast greatly reduced results for the second quarter of 2005, the three months ending June 30, 2005. As alleged in the complaint, Arbinet finally owned up to the true material facts that drive its business, fee revenues and profits – information that had been concealed until this point by defendants. Following the June 21, 2005 disclosures, the price of Arbinet’s common stock fell by more than 20%.