According to the press release issued January 3, 2011, the Complaint alleges Tongxin and certain of its officers and directors with violating Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 by failing to disclose that: (i) the Company’s financial results, as reported, failed to properly account for certain related-transactions, and as a result, the Company would be unable to file its audited consolidated financial statements for the FY 2009; (ii) the Company would not have earnings growth, particularly in the South East Asian markets, or meet expected earnings guidance; (iii) the Company’s top officers were conspiring to embezzle Company funds; (iv) the Company lacked adequate internal controls; and (v) the defendants lacked any reasonable basis for the positive statements about Tongxin’s growth and future business prospects.
Starting from June 30, 2010, the Company slowly began to disclose problems previously hidden from the public, including their failure to timely file with the SEC its required audited consolidated financial statements, the delisting of the Company’s stock on NASDAQ, the Company’s lowered expected revenues for fiscal year 2010, removal of key executives, and the announcement of the Company’s legal proceedings against their former Chief Executive Officer and Chief Financial Officer for embezzlement.
In a reaction to this news, shares of Tongxin common stock fell from prices trading as high as $6.16 per share to as low as $1.35 per share, representing a drop of more than 75%.
Several purported class action complaints have also been filed in the Central District of California.
On January 14, 2011 notice was given that plaintiff voluntarily dismisses an individual defendant without prejudice.
On April 12, 2011, Magistrate Judge Ramon E. Reyes, Jr., signed the order appointing the Tongxin Shareholder Group as Lead Plaintiff. Saxena White P.A. is appointed as Lead Counsel and Pomerantz Haudek Grossman & Gross LLP is appointed as Local Counsel in this action.
On May 25, 2011, the action was transferred from the U.S. District Court for the Eastern District of New York to the Central District of California.
On June 20, 2011, the Court issued an Order consolidating cases. Pursuant to Rule 42(a) of the Federal Rules of Civil Procedure, Augenbaum v. Tongxin Int'l Ltd., No. 11-cv-4815, was consolidated with Goldstein v. Tongxin Int'l, Ltd., No. 11-cv-348-VBF. Goldstein v. Tongxin Int'l, Ltd., No. 11-cv-348-VBF was designated the lead case. On the same date, a consolidated complaint was filed by the plaintiffs.
On March 15, 2012, the parties entered into a Stipulation of Settlement. On May 3, the Court issued an Order preliminarily approving the settlement and providing for notice.
On July 9, 2012, the Court issued an Order awarding attorneys' fees and expenses. On the same date, the Court also issued an Order Approving Plan of Allocation of Settlement Proceeds. Finally, the Court also issued a Final Judgment and Order of Dismissal with Prejudice.