The original class action complaint alleges violations of the Securities Exchange Act of 1934. Specifically, the complaint alleges defendants published a series of materially false and misleading statements that defendants knew and/or recklessly disregarded were materially false and misleading at the time of such publication, and that omitted to reveal material information necessary to make defendants' statements, in light of such material omissions, not materially false and misleading.
Throughout the Class Period, defendants presented TOP Tankers as a crude oil shipping company experiencing rapid growth and expansion, that was using a unique structured growth model predicated upon sales and lease back transactions. Defendants represented to investors that the Company maintained adequate internal controls and procedures, to allow it to engage in these complex commercial transactions , while at the same time, complying with Generally Accepted Accounting Principles ("GAAP") and SEC accounting rules.
The complaint alleges that on or around November 29, 2006, defendants shocked investors after they announced that Ernst & Young, LLP, ("Ernst & Young") the Company's independent auditors, had resigned over a disagreement related to defendants' accounting for certain sale and lease-back transactions. Defendants also revealed that the Company would be forced to restate its interim financial statements for the entire first half of 2006 that had been previously announced to investors and filed with the SEC, to retroactively eliminate reported earnings. TOP Tankers stock plummeted in response to the November 29, 2006 disclosures, falling almost 15% in the single trading day, to close just above $5 .00 per share. This substantial share price decline caused material harm to investors, and also caused substantial losses and damages to TOP Tankers shareholders.
Analysts responded to the shocking news by cutting rankings and estimates for the Company. Cantor Fitzgerald & Co. ("Cantor Fitzgerald"), for instance, cut its rating on TOP Tankers to Sell and lowered its near term price target almost 30%. Cantor Fitzgerald cited the resignation of Ernst & Young, the restatement of its earnings, and an SEC inquiry into the Company's sale/leaseback transactions, among other factors.
Judge Richard Casey passed away on March 22, 2007 and the case was reassigned to Judge Colleen McMahon on May 18, 2007. On July 31, 2007 an order consolidating ten related cases and appointing lead plaintiff was entered. On August 17, 2007 the plaintiff filed an Amended Complaint and on September 20, 2007 the defendants moved to dismiss the complaint. Plaintiffs filed a Corrected Amended Complaint on October 5, 2007 and defendants again moved for dismissal on October 17, 2007. On December 18, 2007, the Court entered the Decision and Order denying the defendants’ motion to dismiss then Corrected and Amended Consolidated Complaint.
As summarized by the Company’s FORM 20-F for the fiscal year ended December 31, 2007, the Court’s [December 18, 2007] decision also directed that the parties engage in limited discovery on certain specific issues, which discovery was to be completed by January 31, 2008. On January 3, 2008, the Company and the Individual Defendants filed their Answer and Affirmative Defenses to Plaintiff’s Corrected and Amended Consolidated Class Action Complaint. On or about January 18, 2008, the parties reached a settlement agreement in principle whereby the plaintiff, on behalf of members of the Class who do not opt out, would dismiss all claims against the Company with prejudice in exchange for a settlement payment of $1.2 million. After being notified of the settlement agreement in principle, the Court held a conference with the parties on February 14, 2008 during which the basic terms of the settlement were disclosed to the Court. On April 25, 2008, plaintiff filed the motion for preliminary approval of the proposed settlement with the Court. On April 28, 2008, the Court entered an order preliminarily approving the proposed settlement and directing that notice be given to all potential members of the Class of the proposed settlement. The Court has ordered a hearing on July 31, 2008 to determine whether the settlement should be approved. The settlement will be funded by the Company’s directors and officers’ insurance carriers.
On July 31, 2008, the Court entered a Memorandum Decision and Order approving the settlement and awarding fees. According to the Memorandum Decision and Order, the Court approved the request for attorney fees in the amount of 30% of the Settlement Amount and $26,777.33 in expenses.
On December 09, 2009 and December 14, 2009, orders authorizing distribution of net settlement fund were granted by the court detailing how the settlement shall be dispersed.