Novatel Wireless, Inc. ("Novatel") provides wireless broadband access solutions for the mobile communications market worldwide.
The original Complaint charges Novatel and certain of the Company's executive officers with violations of federal securities laws. Among other things, Plaintiff claims that Defendants' material omissions and dissemination of materially false and misleading statements concerning the Company's financial performance and prospects caused Novatel's stock price to become artificially inflated, inflicting damages on investors.
The Complaint alleges that throughout the Class Period, Defendants knew or recklessly disregarded that their public statements concerning Novatel's financial performance were materially false and misleading. Specifically, the Complaint alleges that Defendants' public statements failed to disclose or indicate the following: (1) that the Company improperly recognized revenue in violation of its own revenue cut-off procedures; (2) that, as a result of this improper revenue recognition, the Company misstated its financial results during the Class Period; (3) that the Company's financial results were not prepared in accordance with Generally Accepted Accounting Principles (GAAP); (4) that the Company lacked adequate internal and financial controls; and (5), as a result of the foregoing, the Company's financial statements were materially false and misleading at all relevant times.
Throughout most of the Class Period, Defendants issued favorable revenue guidance and touted the Company's financial performance and prospects. For example, on February 20, 2008, Novatel provided revenue guidance of approximately $110 million for first quarter 2008, based in part on "expectations of strong demand for the Company's products, particularly its USB products, as well as assumptions about industry wide supply constraints on certain components."
On May 20, 2008, however, Novatel filed a Form 8-K with the SEC stating that the Company "will notify the Nasdaq Stock Market that it did not timely file its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008," and that "the Company and its Audit Committee have undertaken an expanded enhanced review of the Company's revenue cut off procedures and internal controls related to certain customer contracts, which review is ongoing."
Then, on August 19, 2008, following the close of trading, Novatel shocked investors when it issued a press release which revealed that the Audit Committee of the Company's board of directors had reviewed the accounting for six transactions and made a preliminary determination to move approximately $3.4 million of revenues from the first quarter of 2008 to the second quarter of 2008. Moreover, Novatel disclosed for the first time that this was not a minor accounting issue and that there was a possibility that the Company may have to restate its audited financial statements for the 2007 fiscal year. As a result of this news, shares of Novatel declined $2.11 per share, more than 25%, to close on August 20, 2008 at $6.29 per share, on unusually heavy volume.
According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2009, on September 15, 2008, and September 18, 2008, two putative securities class action lawsuits were filed in the United States District Court for the Southern District of California on behalf of persons who allegedly purchased Novatel stock between February 5, 2007 and August 19, 2008. On December 11, 2008, these lawsuits were consolidated into a single action entitled Backe v. Novatel Wireless, Inc., et al., Case No. 08-CV-01689-H (RBB) (Consolidated with Case No. 08-CV-01714-H (RBB)) (U.S.D.C., S.D. Cal.). The Plaintiffs filed the consolidated Complaint on behalf of persons who allegedly purchased Novatel stock between February 27, 2007 and November 10, 2008. The consolidated Complaint names the Company and certain of its current and former officers as Defendants. The consolidated Complaint alleges generally that Novatel issued materially false and misleading statements during the relevant time period regarding the strength of its products and market share, its financial results and internal controls. The Plaintiffs are seeking an unspecified amount of damages and costs.
On April 1, 2009, the court entered an order denying the Defendants’ previously filed motion to dismiss the consolidated Complaint. On May 1, 2009, all Defendants filed an answer to the consolidated Complaint and moved to reconsider the order on the motion to dismiss. On June 5, 2009, the court granted Defendants’ motion for reconsideration and vacated its prior order denying Defendants’ motion to dismiss. On July 28, 2009, the court denied Defendants’ renewed motion to dismiss.
On January 11, 2010, the lead Plaintiff filed a motion to certify the class, and on May 12, 2010, the motion was approved. On February 14, 2011, two motions for judgments on the pleadings were filed. The parties moved to discovery and settlement conferences.
On November 23, 2011, the individual Defendant’s motion for judgment on the pleadings was granted and the Defendants’ motion for summary judgment was granted in part and denied in part.
The parties entered into a Stipulation of Settlement on January 31, 2014. This Settlement was preliminarily approved by the Court on March 10. On June 23, the Court issued separate Orders approving the plan of distribution of Settlement proceeds, and also awarding attorneys' fees and expenses. This was followed by a Final Judgment and Order of Dismissal with Prejudice.
