According to a press release dated August 14, 2006, the Complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market during the Class Period thereby artificially inflating the price of IMAX securities. During February and March 2006, the company issued press releases touting the Company's financial success, and indicated the Company's willingness to explore financial options. A press release issued as late as May 9, 2006 continued to mislead investors concerning IMAX's true financial condition.
The complaint further alleges that on August 9, 2006, IMAX shocked the market by announcing that it was being investigated by Securities and Exchange Commission ("SEC") regarding revenue-recognition timing. The SEC's inquiry was focused on IMAX's recognition of revenue in the fourth quarter of 2005 in 10 theaters that were not open during that quarter. Further, IMAX said that it had identified a "material weakness" related to revenue-recognition issues in its second- quarter financial report, leading to a reduction in revenue. The press release also stated the Company had yet to find an investor to effectuate a merger or purchase. After these announcements the price of IMAX shares crashed, falling by 40.6%, or $3.91 on the following trading day.
The Complaint alleges that IMAX and its top executives knew during the Class Period that revenue was being improperly recognized, but failed to make the necessary adjustments, thus artificially inflating the stock. The Complaint alleges that to affect a sale or merger of IMAX, and to gain as higher price as possible for IMAX in such a transaction, it was critical that the value of IMAX was perceived to be high. Therefore, IMAX and some of its top executives sought to bolster the share price of the Company by strategically recognizing revenue when it most suited the Company, even when such revenue recognition policies violated recognized accounting principles.
According to the Company’s Form 10-Q for the quarterly period ended September 30, 2009, the Company and certain of its officers and directors were named as defendants in eight purported class action lawsuits filed between August 11, 2006 and September 18, 2006, alleging violations of U.S. federal securities laws. These eight actions were filed in the U.S. District Court for the Southern District of New York. On January 18, 2007, the Court consolidated all eight class action lawsuits and appointed Westchester Capital Management, Inc. as the lead plaintiff and Abbey Spanier Rodd & Abrams, LLP as lead plaintiff’s counsel. On October 2, 2007, plaintiffs filed a consolidated amended class action complaint. The amended complaint, brought on behalf of shareholders who purchased the Company’s common stock between February 27, 2003 and July 20, 2007, alleges primarily that the defendants engaged in securities fraud by disseminating materially false and misleading statements during the class period regarding the Company’s revenue recognition of theater system installations, and failing to disclose material information concerning the Company’s revenue recognition practices. The amended complaint also added PricewaterhouseCoopers LLP, the Company’s auditors, as a defendant. The lawsuit seeks unspecified compensatory damages, costs, and expenses. The defendants filed a motion to dismiss the amended complaint on December 10, 2007. On September 16, 2008, the Court issued a memorandum opinion and order, denying the motion. On October 6, 2008, the defendants filed an answer to the amended complaint. On October 31, 2008, the plaintiffs filed a motion for class certification. Fact discovery on the merits commenced on November 14, 2008 and is ongoing. On March 13, 2009, the Court granted a second prospective lead plaintiff’s request to file a motion for reconsideration of the Court’s order naming Westchester Capital Management, Inc. as the lead plaintiff and issued an order denying without prejudice plaintiff’s class certification motion pending resolution of the motion for reconsideration. On June 29, 2009, the Court granted the motion for reconsideration and appointed Snow Capital Investment Partners, L.P. as the lead plaintiff and Coughlin Stoia Geller Rudman & Robbins LLP as lead plaintiff’s counsel. Westchester Capital Management, Inc, appealed this decision, but the U.S. Court of Appeals for the Second Circuit denied its petition on October 1, 2009.
On April 14, 2011, the Court appointed Merger Fund as Lead Plaintiff and Abbey Spanier Rodd & Abrams LLP as Lead Counsel for the class.
On March 28, 2012, the Court issued the Amended Order Preliminarily Approving Final Settlement And Providing For Notice.
On June 20, 2012, the Court issued a Memorandum and Order. The court: (1) found that the notice provided to members of the class was adequate; (2) certified the class for the purpose of settlement; (3) approved the settlement; (4) approved the plan of allocation; and (5) reserved decision on the requested attorneys' fees and expenses pending further briefing on these issues from lead plaintiff's counsel.
On August 1, 2012, the Court issued a Memorandum and Order granting 33% of the settlement amount to be divided among counsel and to be apportioned between an award of attorneys' fees and the reimbursement of expenses in such manner as lead plaintiff's counsel determines pursuant to its good-faith judgment.