According to a press release dated February 27, 2009, the complaint charges NutraCea and certain of its officers and directors with violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 by issuing materially inaccurate financial statements to the investing public. On February 23, 2009, NutraCea announced that it would be restating revenue for the quarterly periods from the second quarter of 2007 through the fourth quarter of 2008 and for the fiscal year ended December 31, 2007. The restatement is due to NutraCea's improper recognition of revenue on two transactions in 2007. Of the approximately $22.2 million of revenue reported for 2007, NutraCea estimates that $4.6 million will be reversed. News of the pending restatement caused NutraCea's stock price to fall significantly, damaging investors.
On May 29, 2009, Judge Frederick J. Martone granted the motion to consolidate two related actions under CV 09-406-PHX-FJM. Harvey Pensack is appointed as lead plaintiff for the class. The Rosen Law Firm, P.A. is appointed as lead counsel and Tiffany & Bosco as liaison counsel. On July 1, 2009, the lead plaintiff filed a Consolidated Class Action Complaint. The defendants responded by filing several motions to dismiss on August 3, 2009. On September 25, 2009, the defendants’ motions were dismissed. That same day, the plaintiffs filed a First Amended Consolidated Class Action Complaint. The defendants again responded by filing several motions to dismiss. On November 11, 2009, defendant NutraCea filed a notice of filing bankruptcy. On November 17, 2009, Judge Frederick J. Martone stayed and dismissed without prejudice NutraCea only. On February 25, 2010, the Judge Martone denied an individual defendant’s motion to dismiss and granted in part and denied in part another individual defendant’s motion to dismiss.
On April 5, 2010, the plaintiffs filed a motion to certify the class. On April 16, 2010, the plaintiffs filed a Notice of Settlement.
According to a press release dated May 18, 2010, NutraCea (Pink Sheets: NTRZ), a world leader in stabilized rice bran (SRB) nutrient research and technology, announced that it has reached a complete settlement of the securities class action lawsuit initially filed on February 29, 2009. The settlement of the consolidated class action suit is subject to preliminary and final approval of the United States District Court for the District of Arizona and the United States Bankruptcy Court for the District of Arizona. Under the terms of the settlement agreement NutraCea's insurance company will create a settlement fund in the amount of $1,500,000 to pay claims submitted by class members. The settlement fund will also contain 50% of any funds remaining in the insurance policy after payment of all valid claims (including legal fees), as long as there is $150,000 or more of funds remaining in the policy. The plaintiffs were seeking damages against NutraCea and certain former officers and directors for alleged federal and Arizona state securities law violations. The settlement provides full and complete settlement for all claims against NutraCea and the other defendants under the class action suit.
On June 3, 2010, the settlement was preliminarily approved. The Settlement Hearing is scheduled for October 1, 2010. On October 4, 2010, the Court entered the Order and Final Judgment approving the settlement and dismissing the action with prejudice.