According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2006, on or around November 30, 2005, George Porch filed a putative class action in the United States District Court for the Western District of Louisiana against Stone and certain individuals purporting to allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Three similar complaints were filed soon thereafter. All complaints had asserted a putative class period commencing on June 17, 2005 and ending on October 6, 2005. On March 17, 2006, these purported class actions were consolidated, with El Paso Fireman & Policeman’s Pension Fund designated as Lead Plaintiff. Lead plaintiff filed a consolidated class action complaint on or about June 14, 2006. The consolidated complaint alleges claims similar to those described above and expands the putative class period to commence on May 2, 2001 and to end on March 10, 2006. On September 13, 2006, Stone and the individual defendants filed motions seeking dismissal of that action.
The original Complaint alleges defendants, Stone Energy and certain of its officers and directors, violated federal securities laws by issuing a series of materially false statements. The Company engages in the acquisition, exploration, development, operation, and production of oil and gas in the Gulf of Mexico, various basins of the Rocky Mountains, and Williston basin oil of North Dakota and Montana.
Specifically, the complaint alleges defendants failed to disclose and misrepresented the following adverse facts: (i) that Stone Energy was materially overstating its financial results by overvaluing its oil reserves through improper and aggressive reserve methodologies. Stone Energy has now launched an internal investigation into its reserve practices and admitted that it overstated its oil reserves and that it will be restating its financial statements for 2001 to 2004 and for the first six months of 2005; (ii) that the Company lacked adequate internal controls and was therefore unable to ascertain its true financial condition; and (iii) that as a result of the foregoing, the values of the Company's proven reserves, assets and future net cash flows were materially overstated at all relevant times.
The complaint further alleges that on or around October 6, 2005, Stone Energy issued a press release announcing that it intends to take a significant reserve write-down, among other things. On this news, the price of Stone Energy stock fell $7.93 per share or almost 14% to close at $48.14 per share. Then, on November 8, 2005, Stone Energy issued a press release announcing that it will restate its financial statements for the periods from 2001 to 2004 and for the first six months of 2005.
On December 11, 2006 the defendants filed a notice that their September 2006 motion to dismiss was to be changed to a motion for summary judgment. The motions were referred to Magistrate Judge Methvin for briefing, who submitted her August 17, 2007 "Reports and Recommendations" calling for the section 10b claims be dismissed against two individuals, that the claims of plaintiffs who sold their shares before the October 6, 2005 disclosure by Stone of the reserve errors be dismissed, but that the motions to dismiss be denied as to all other claims asserted by plaintiffs.
Despite numerous objections to the Magistrate's "Reports and Recommendations" regarding the dismissal of the section 10b claims, a judgment was entered adopting the Magistrate's suggestion of dismissal on October 1, 2007. Defendants filed an answer to the remaining claims on October 16, 2007.
On April 29, 2009, a Rule 54(B) Final Judgment was ordered in the action as to only the individual claims by Plaintiff El Paso Firemen and Policemen's Pension Fund.
On May 19, 2009, a Notice Of Appeal was filed with the United States Court of Appeals for the Fifth Circuit.
On September 30, 2009, an order to appoint counsel was granted Bernstein Litowitz Berger & Grossmann LLP as Co-Lead Counsel, Morrow Morrow Ryan & Bassett as Liaison Counsel and, Barroway topaz Kessler Meltzer Check LLP as Co-Lead Counsel.
On December 17, 2009, an Order was rendered by the Fifth Circuit Court of Appeals thereby dismissing without prejudice to the right of either party to reinstate the
appeal by letter to the Clerk of this Court within 180 days. Otherwise the case will be dismissed with prejudice.
On January 14, 2010, a proposed order preliminarily approving settlement was granted by the court.