The first class action lawsuit against Virgin Mobile USA, Inc. was filed on behalf of shareholders who purchased the common stock of VM USA in connection with the Company's IPO on or about October 11, 2007, or who purchased shares thereafter in the open market.
VM USA, certain of its officers and directors, certain controlling majority shareholders, and the Company's underwriters are charged with including, or allowing the inclusion of, materially false and misleading statements in the Registration Statement and Prospectus issued in connection with the IPO, in violation of the Securities Act of 1933.
The Complaint charges that VM USA raised over $412.5 million through the issuance of 27.5 million shares, despite the Registration Statement's false and misleading statements. Specifically, defendants each failed to conduct an adequate due diligence investigation into the Company prior to the IPO, and they also each failed to reveal, at the time of the IPO, that Virgin Mobile was also not performing according to plan and that results for the third quarter of 2007 -- the period ended a full 2 weeks prior to the VM USA IPO -- showed growing losses as expenses rose and business slowed, indicating that the Company would be forced to revise downward its near-term forward financial and operational guidance.
On November 16, 2007, approximately one month after the IPO, investors learned the truth about VM USA's financial and operational condition, after defendants revealed that the Company had suffered a widening loss for the third quarter, the period ended September 30, 2007, as a result of rising expenses -- a loss of $7.3 million, or ($0.15) per share, compared with a loss of only $5.1 million, or ($0.10) per share, in the same period the prior year. These results also contrasted the $28.9 million in net income, and profits of $0.55 per share reported in the first six months of 2007, reported prior to the IPO. Further, Defendants also revealed that fourth-quarter 2007 outlook called for between 350,000 and 400,000 net customer additions, an anemic amount analysts described as "weak," and that 4Q:07 guidance would be what was described as "well below" expectations.
On this news, shares of VM USA fell nearly 30% in intra-day trading, from an opening trading price of $11.09 per share to a trading low of $8.07 per share before closing the trading day at $9.10 per share, on exceedingly high volume of 6.512 million shares.
According to the Company’s Form 10-Q for the quarterly period ended March 31, 2009, plaintiffs filed two class-action federal lawsuits, one in the District of New Jersey and the other in the Southern District of New York, against the Company, certain of the Company’s officers and directors, and other defendants. The suits alleged that the prospectus and registration statement filed pursuant to the Company’s IPO contained materially false and misleading statements in violation of the Securities Act of 1933, as amended, and additionally alleged that at the time of the IPO the Company was aware, but did not disclose, that results for the third quarter of 2007 indicated widening losses and slowing customer growth trends. On January 7, 2008, the Company filed a motion to consolidate all cases in the United States District Court for the Southern District of New York for pre-trial purposes. On April 7, 2008, the United States Judicial Panel on Multidistrict Litigation granted the motion and consolidated the cases in the District of New Jersey. On March 17, 2008, the district court judge in the New Jersey matter appointed the New Jersey plaintiffs as lead plaintiffs for the litigation. Plaintiffs filed a consolidated amended complaint on May 16, 2008. On July 15, 2008, the Company filed a motion to dismiss the amended complaint. Plaintiffs filed an opposition brief on October 6, 2008 and the Company filed a reply brief on November 5, 2008. On March 9, 2009, the court issued an order denying the Company’s motion to dismiss the case. The parties soon after engaged in discovery proceedings.
On July 23, 2010, the plaintiff filed a motion for preliminary approval of the settlement. The proposed settlement is in the amount of $19.5 million in cash. That same day, a Stipulation of Dismissal of Defendant Lehman Brothers, Inc. was filed. The Stipulation was signed by Judge Susan D. Wigenton on July 27, 2010, and the action was dismissed as to Defendant Lehman Brothers, Inc., only. The settlement was preliminarily approved on August 20, 2010. The settlement hearing is scheduled for December 8, 2010. On December 9, 2010, the Court entered the Final Judgment Order. The settlement was approved and the case is now terminated.