Herley Industries, Inc. (Nasdaq: HRLY) produces microwave and millimeter wave products, primarily to the defense and aerospace industries.
The original Complaint charges Herley and certain of its officers and directors with violations of the Securities Exchange Act of 1934. More specifically, the Complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to Defendants or recklessly disregarded by them: (a) that the Company's financial results were achieved through illegal conduct, specifically the misrepresentation of manufacturing costs on contracts with the U.S. Government and the falsification of a bid in order to win the award of a contract; (b) that the Company lacked adequate internal controls; and (c) that, as a result of the foregoing, the Company would likely be subject to enhanced governmental scrutiny, governmental fines for improper conduct, and the Company's ability to receive new contract awards from the U.S. Government and its ability to reap future revenues would be in serious doubt.
On June 5, 2006, the Company announced that its fiscal 2006 third quarter earnings would be below Company expectations and analyst consensus estimates. Curiously, the Company made no mention of an impending indictment against the Company and its Chairman, Lee N. Blatt, and its effect on the Company's present and future prospects. Upon this announcement, shares of Herley fell $1.88 per share, or approximately 10 percent, to close at $17.50 per share, on heavy trading volume.
On June 6, 2006, the Company revealed that the U.S. Attorney's office for the Eastern District in Pennsylvania had indicted the Company and its Chairman Lee N. Blatt on multiple charges in connection with excessive profits improperly earned by the Company on three contracts with the U.S. Department of Defense. Upon this announcement, shares of Herley fell $0.98 per share, or 6 percent, to close at $16.52 per share, on heavy trading volume. Shares of Herley stock continued to decline on the next trading day as news leaked out on the details of the indictment. On the next trading day, June 7, 2006, shares of the Company's stock fell an additional $1.48 per share, or 9 percent, to close at $15.04 per share, on heavy trading volume.
Subsequently, on June 9, 2006, the Company announced that Lee N. Blatt resigned as Chairman of the Board and as a director of the Company on June 8, 2006. On June 13, 2006, the Company announced that its operations in Lancaster, Pennsylvania, Woburn, Massachusetts, Chicago, Illinois and Herley's subsidiary in Farmingdale, New York were suspended from receiving new contract awards from the U.S. Government. Following this announcement, shares of Herley plunged $5.19 per share, or 34 percent, to close at $10.06 per share, on heavy trading volume. On June 14, 2006, the Company issued a press release announcing its financial results for the fiscal third quarter of 2006, the period ended April 30, 2006. The Company also announced that its quarterly report on form 10-Q would be delayed since its auditors need to complete its review of procedures in connection with the Company's recent indictment. Upon this announcement, shares of Herley continued to fall, losing an additional $0.85 per share, or 8 percent, to close at $9.21 per share, on heavy trading volume.
On November 21, 2006, the Court entered the Order granting the Plaintiff’s motion to consolidate several actions. On February 5, 2007, a Consolidated Complaint was filed. In April 2007, the Defendants filed several motions to dismiss the Consolidated Complaint.
According to a press release dated July 23, 2007, on July 17, 2007, a federal court denied motions to dismiss filed by Herley and Herley's former Chairman, Lee N. Blatt in the proceeding In re Herley Industries Inc. Securities Litigation, No. 06-2596 (E.D. Pa.). The Court also denied motions by certain officers to dismiss claims under one section of the securities laws, while dismissing claims under another.
On July 9, 2008, the lead Plaintiff filed a motion to certify the class and the parties engaged in discovery proceedings. On March 3, 2009, the Defendants filed a motion to dismiss for lack of standing. On September 30, 2009, Judge Juan R. Sanchez denied that motion. Further that day, Judge Sanchez granted the Plaintiff’s motion for class certification. On October 30, 2009, a motion for partial summary judgment and a motion for summary judgment were filed.
According to a press release dated January 15, 2010, Galleon Management LP, whose founder Raj Rajaratnam was charged with insider trading, dropped out as lead Plaintiff among investors suing a Pennsylvania defense contractor for securities fraud. Galleon’s lawyers asked that the hedge-fund firm be dismissed from its lead role in a Dec. 11 letter. U.S. District Judge Juan R. Sanchez in Philadelphia, who’s overseeing the case, said in a ruling that he is granting the request. Galleon “was appointed lead plaintiff more than three years ago, but it has since become clear the now-defunct Galleon can no longer continue in this role,” Sanchez wrote. … In his ruling, Sanchez appointed as the new lead Plaintiff Norfolk County Retirement System in Massachusetts, the next-biggest loser, with $104,000.
On January 28, 2010, Judge Juan R. Sánchez denied Plaintiffs’ Motion for Partial Summary Judgment and also denied the Defendants’ Motion for Summary Judgment. On February 5, 1010, the Plaintiffs filed a Second Amended Consolidated Complaint. This Complaint was filed under seal.
According to a press release dated July 2, 2010, John A. Thonet, Chairman of the Board for Herley, announced that an agreement has been reached and preliminarily approved by the Court, to settle all securities class actions originally filed in 2006 in the United States District Court for the Eastern District of Pennsylvania, consolidated at In re Herley Industries, Inc. Securities Litigation, Docket No. 06-cv-2596 (JRS). The proposed settlement resolves any and all lawsuits filed against the Company as a result of the indictment brought in June 2006. As previously disclosed, the Company and certain of its current and former officers and directors were named as Defendants in a class action under which the lead Plaintiff sought damages in excess of $80 million on behalf of a class of purchasers of the Company's securities between October 1, 2001 and June 14, 2006 for alleged violations of the federal securities laws. The Company and the individual Defendants have steadfastly maintained that the claims raised in the securities class action were without merit, and have vigorously contested those claims. As part of the settlement, the Company and the individual Defendants continue to deny any wrongdoing or any other improper actions. The terms of the settlement provide for the dismissal of the litigation against all Defendants, including the Company, and the creation by the Company of a $10 million settlement fund. The fund will be allocated, after deduction of court-ordered expenses and Counsel fees, among members of the settlement class who submit valid proofs of claims. The settlement remains subject to the final approval of the Court, which will convene a hearing to address this issue on September 13, 2010. Terms for distribution of the settlement fund to class members, less fees awarded by the Court to class Counsel, will be contained in a notice to be sent to class members.
On September 13, 2010, Judge Juan R. Sanchez approved the motion for attorney’s fees and reimbursement of expenses. Judge Sanchez approved the final settlement and dismissed the action with prejudice. The case is now closed.
