In July 2006, two class action complaints were filed against Ionatron and its founders. Each of the class actions was filed in the United States District Court for the District of Arizona and allege, among other things, violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Defendants allegedly violated federal securities laws by issuing a series of materially false statements regarding the battle field-readiness of its weapons. Specifically, on June 27, 2005, the Company heralded the development of a field-deployable vehicle incorporating its counter-Improvised Explosive Device ("IED") technology, also known as the Joint IED Neutralizer ("JIN"). Ionatron announced that it planned to sell this counter-IED vehicle to the U.S. Government. Despite the Company's claim that the vehicle would be field-deployable, the complaint alleges that the Company actually concealed that the vehicle was at best an improvisation, incapable of meeting U.S. Government specifications for field-readiness. Meanwhile, Company insiders sold over 1.5 million shares of their Ionatron stock for proceeds of $18.4 million. The complaint further alleges that on or around May 10, 2006, the Company finally revealed to investors that the JIN vehicle actually was not "deployment-ready" in that the U.S. Government determined that the vehicle lacked the ruggedness and capabilities necessary for field deployment. On this news, the price of Ionatron stock plummeted, losing 12.3%, to close on May 11, 2006, at $11.25.
The court consolidated these cases, and a consolidated amended complaint was served on January 25, 2007. On February 23, 2007, the Company and the individual defendants moved to dismiss the consolidated amended complaint for failure to state a cause of action. The plaintiffs have opposed the Company’s motion to dismiss.
According to a press release dated April 4, 2008, Arizona Federal Judge Cindy K. Jorgenson has denied a bid by securities fraud defendant Ionatron Inc. (now Applied Energetics Inc.) (Nasdaq:AERG) to have a class action lawsuit against the company and certain other insider defendants dismissed.
On November 12, 2008, plaintiffs filed a motion to dismiss the counterclaims filed by Ionatron, Inc. in its answer to the Consolidated Complaint. Plaintiffs argue that the Company's counterclaims lack subject matter jurisdiction, nor do they state a claim for which relief could be granted. On March 12, 2009 the judge dismissed Ionatron's claims of "tortious interference with contract" against the plaintiffs, but denied motions to dismiss other counterclaims. The judge then issued a follow up order that parties must select a mutually agreeable mediator and schedule an appointment before the end of the month.
According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2009, in July 2009, we reached an agreement with the lead plaintiffs to settle the consolidated class action lawsuits. Under the terms of the proposed settlement of the class action lawsuits, those lawsuits will be dismissed with prejudice, and Applied Energetics and all other defendants will receive a full and complete release of all claims asserted against them in the litigation, in exchange for the payment of an aggregate of $5.3 million in cash and the issuance of previously unissued shares of common stock by Applied Energetics valued at $1.2 million, provided that the number of shares of common stock to be issued will not exceed 4 million shares. There is no admission of liability by any of the defendants.
On September 30, 2009, the settlement was approved and the action was dismissed with prejudice.
On April 13, 2010, the Court issued an Order Regarding Distribution of Settlement Funds.