The complaint charges that Charys' officers violated the Securities Exchange Act of 1934. Charys operates two segments: Remediation and Reconstruction and Wireless Communications and Data Infrastructure. Charys' Remediation segment provides services to respond to catastrophic losses, like hurricanes; its Wireless segment offers telecommunication services to large service providers. According to the complaint, defendants engaged in an elaborate accounting fraud in connection with several companies Charys acquired.
In the closing months of 2005, Charys acquired Viasys Network Services, Inc. and Viasys Services, Inc. ("Viasys"), as well as Method IQ, Inc. ("MIQ"). The sellers of Viasys and MIQ were to receive "earn out" payments if, after the acquisitions, Charys achieved certain goals for revenue and earnings. The complaint alleges that the pre-acquisition revenues of Viasys and MIQ should have been properly recorded on the books of those companies. Instead, they were improperly deferred and recorded on the books of Charys after it acquired those companies. In addition, the post-acquisition expenses of Viasys and MIQ should have been recorded on the books of Charys, but were instead improperly accrued and recorded on the books of Viasys and MIQ. As a result, Charys' revenue and gross profit were overstated during the Class Period, and it expenses were understated.
On June 8, 2006, Charys acquired Crochet & Borel Services, Inc. ("C&B"), using artificially inflated stock as currency. Defendants engaged in the same accounting scheme: the reported C&B revenue and income from operations were materially overstated because Charys had fraudulently included pre-acquisition C&B revenues and had omitted C&B post-acquisition expenses. In addition, during the Class Period, defendants knew or recklessly ignored that C&B's goodwill was materially impaired by well over $100 million, but failed to disclose this fact. Charys, however, continued to request extensions of time from the SEC in which to file its annual report on Form 10-KSB.
On August 14, 2007, the end of the Class Period, when no large catastrophic-loss contracts for C&B were announced, the investment community knew that a large write-down of C&B's goodwill was imminent. The stock price dropped, and continued to decline thereafter. On November 5, 2007, Charys announced a $202.5 million write-down of goodwill attributable to C&B. Charys also finally filed its fiscal 2007 Form 10-KSB on that date, confirming that C&B had been an unprofitable business whose goodwill should have been written down as of October 31, 2006. On February 14, 2008, Charys filed for bankruptcy and announced that individual defendant, the Company's CEO, had resigned.
On April 21, 2008, a motion was filed to appoint lead plaintiffs and lead counsels. On September 4, 2008, District Court Judge Beverly B. Martin granted the motion to approve the Cummings Group as lead plaintiff and approved lead plaintiff’s selection of Vianale & Vianale LLP and Shalov Stone Bonner & Rocco LLP as co-lead counsel and Greenfield Millican P.C. as liaison counsel. On March 5, 2009, Judge Martin issued the Order dismissing the action for want of prosecution. Judgment was entered that same day and the civil action is now terminated.