The complaint alleges violations of the federal securities laws by Xing and certain of its executives. Specifically, as alleged in the Complaint, on July 17, 2007, before the opening of trading, Xing disclosed, among other things, that in connection with the audit of the financial statements of a Company subsidiary, certain misstatements for the years 2005, 2004 and 2003 were identified that were not initially detected through the Company's internal control over financial reporting and that, as a result, management has decided to restate the Company's consolidated financial statements for the years ended December 31, 2005, 2004 and 2003. As further alleged, during the Class Period, Xing overstated its reported net income for the years ended December 31, 2005 and 2004 by 2% and 93%, respectively, and for the year ended December 31, 2003, Xing understated its reported net loss by 210%.
The complaint further alleges that on July 17, 2007, the Company filed its annual report for the year ended December 31, 2006 on Form 20-F with the SEC that stated that the misstatements in the financial statements resulted from certain deficiencies in the Company's system of internal controls over financial reporting.
In response to these announcements, on July 17, 2007, the price of Xing stock declined from $13.97 per share at the close of trading on July 16, 2007, to close at $11.04 per share, a decline of approximately 21%, on extremely heavy trading volume.
As summarized by the Company’s FORM 20-F for the fiscal year ended December 31, 2007, by Order, dated November 1, 2007, Judge Denise Cote consolidated the five cases and appointed lead plaintiff and lead plaintiff’s counsel. A mediation was held on January 10, 2008 in front of Magistrate Judge Henry Pitman and the parties agreed to settle the case for $2.4 million. The Company’s D&O insurance carrier agreed to contribute $300,000 to the settlement. A Stipulation of Settlement was executed on February 25, 2008. The Stipulation of Settlement was filed with the Court on February 26, 2008 and the preliminary approval order was signed on April 2, 2008. The final fairness hearing is scheduled for July 11, 2008.
According to a press release dated on July 15, 2008, Qiao Xing Universal Telephone, Inc. (Nasdaq: XING) announced that the U.S. District Judge Denise L. Cote gave her final approval of the settlement of the class action against Qiao Xing Universal Telephone, Inc. and its directors and officers. The Final Approval Order and Judgment was signed and entered on the same day. The settlement amount for the class action was $2,400,000. The Company's directors and officers insurance carrier contributed $300,000 towards the settlement. The Company has accrued a $2,100,000 non-operating loss in its 2007 consolidated financial statements in connection with the settlement. This loss had no material impact on the consolidated results of the Company for the year ended December 31, 2007.
On January 22, 2010, an order authorizing distribution of net settlement fund, inclusion of late claims, payment of settlement administration expenses, and donation of unclaimed funds was entered by the Court.