The complaint alleges that on or around March 16, 2006, the forensic accounting firm retained by the Audit Committee to conduct the investigation presented preliminary findings to the Audit Committee, concluding that a number of revenue and receivables in respect of Image's inventory sales were improperly recorded. On March 16, 2006, based on such preliminary findings, the Audit Committee, in consultation with the forensic accountant, determined that the 2004 Financials and the related independent auditor's report can no longer be relied upon. Because this announcement was after the close of trading on March 16, 2006, Image stock did not fall until the next day, when it fell about 16% from $1.55 on March 17, 2006 to $1.30 on March 20, 2006, the next trading day.
On October 10, 2006, the Court entered the Order signed by U.S. District Judge John G. Koeltl granting the motion to appoint lead plaintiffs and lead counsel. Further that day, the Court entered the Order staying the action as to defendant Image Innovation Holdings, Inc. According to the Order, the action is stayed as to the defendant Image Innovations Holdings only because it has filed a petition for relief under Chapter 11 of the Bankruptcy Code. On December 1, 2006, the Court entered a Stipulation and Order of Dismissal, dismissing the action against an individual defendant with prejudice and without costs.
Despite a court order staying this action against Image Innovations, the company was included as a defendant in a consolidated complaint filed against it, several officers and directors, as well as H.E. Capital, a large shareholder and funding contributor to Image Innovations and several of its officers. The First Amended Complaint was filed on January 3, 2007. Several answers to the complaint and various cross-claims were entered from May 2007 to September 2007. On March 24, 2008, Judge John G. Koeltl granted in part and denied in part certain claims and certain counterclaims against certain defendants.
Additional motions to dismiss amended counterclaims were filed in May 2008. On October 27, 2008, defendant H.E. Capital S.A. was voluntarily dismissed without prejudice. On November 5, 2008, Judge Koetl issued an Opinion and Order granting the motions to dismiss the amended counterclaims.
On July 21, 2010, The plaintiffs' motion for class certification pursuant to Rule 23(a) and (b)(3) was granted. The plaintiffs' motion to be appointed Class Representative was granted. The plaintiffs' motion to appoint Lead Counsel, Federman & Sherwood, as Class Counsel was granted.