Prior to a ruling on the pending motions for dismissal, plaintiffs filed a Stipulation of Settlement outlining a $7 million agreement between parties to dismiss the claims against defendants. The agreement, and motions for preliminary approval were filed March 12, 2009.
On March 24, 2008 the judge ordered related cases consolidated and appointed lead plaintiffs and lead counsel for the class. Plaintiffs filed their Consolidated Complaint against the defendants on April 23, 2008. Defendants filed a Motion to Dismiss one month later. However, the judge denied the motion without prejudice pending the requested filing by plaintiffs of an amended complaint. Plaintiffs filed their amended complaint on October 3, 2008. Motions to dismiss were quickly filed in November 2008.
According to a press release dated December 27, 2007, the complaint charges Basin and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Basin designs, builds and implements systems for the treatment of contaminated groundwater.
Specifically, the complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company’s business and financial results. As a result of defendants’ false statements, Basin stock traded at artificially inflated prices during the Class Period, reaching a high of $13.06 per share on November 8, 2007.
On November 14, 2007, before the market opened, the Company reported its financial results for the quarter ended September 30, 2007, and announced that during the third quarter, the Company recorded a $4.7 million charge to cost of revenues to reserve for future projected losses. The reserve was due primarily to poorly priced contracts, increasing waste disposal and salt purchase costs and the inability to contractually pass increased costs on to the Company’s clients. This charge to cost of revenues was in addition to the reserve previously recorded in the fourth quarter of 2006. On this news, Basin’s stock declined $2.29 per share to close at $8.01 per share, a one-day decline of 22% on volume of 1.4 million shares.
According to the complaint, the true facts, which were known by the defendants but concealed from the investing public during the Class Period, were as follows: (a) the Company failed to properly account for its reserves for its legacy system contracts related to its system sales and water service agreement contracts; (b) the Company’s unprofitable legacy business would continue to weigh on the Company’s results for some period of time as the Company was having difficultly reworking its unfavorable legacy contracts; (c) defendants’ Class Period statements that by the end of the second quarter of 2007 the Company had largely completed its internal operational transition of its business practices and processes and had resolved the bulk of the issues concerning its legacy contracts were patently false; and (d) the Company lacked requisite internal controls to ensure that Company was properly accounting for its reserves for its legacy contracts, and, as a result, the Company’s projections and reported results issued during the Class Period were based upon defective assumptions and/or manipulated facts.