According to a press release dated July 18, 2007, a class action lawsuit was filed on June 29, 2007, on behalf of purchasers of the securities issued from the American Capital Corporation (“American Capital”) and Royal Palm Capital Group, Inc. (“Royal Palm”). Specifically, the action seeks to pursue remedies under Section 10(b) of the Securities Exchange Act of 1934, Rule 10(b)(5) promulgated thereunder, Section 20(a) of the Securities and Exchange Act of 1934 and for a claim of unsuitability. The complaint alleges that defendants made numerous materially false and misleading statements and fraudulently concealed facts regarding investments in American Capital and Royal Palm. Specifically, the complaint alleges that defendants misrepresented the financial stability of American Capital and Royal Palm and misrepresented the financial stability of investments in American Capital and Royal Palm.
Further, the complaint alleges that named individuals in control positions of various entities used inter-company transactions including but not limited to “consulting” arrangements, placement agreements, and inter-company loans to artificially inflate the financial conditions of American Capital and Royal Palm, while siphoning off money from these entities through such inter-company dealings. For example, the complaint alleges American Capital loaned $1.3 million to a company called AEI Holding Corporation, entered a placement agreement with Advanced Equities, Inc., an AEI affiliate, and then subsequently repaid the loan directly to the senior manager of American Capital, rather than to American Capital. Likewise, American Capital is alleged to have issued a dividend in the form of stock in a subsidiary, SSI-PM Holdings, Inc., an entity purportedly formed to acquire another entity, Sunshine Industries, Inc. (“Sunshine”). Another entity, owned by certain defendants who were also principals of American Capital, was paid $150,000 to “restructure” Sunshine. However, Sunshine filed for bankruptcy in 2005.
On October 11, 2007, the Court entered the Order approving the stipulation regarding appointment of lead plaintiff and approval of selected lead counsel. Group leaders, Lyle Brehm, David Buckley, Rex Weldon, and Jill Schuneman are appointed Lead Plaintiffs in this action. The law firms of Koley Jessen, P.C., L.L.O., Liben, Whitted, Houghton, Slowiaczek & Cavanagh, P.C., L.L.O., and Matteson, Ricketts, Davies, Stewart & Calkins are appointed lead counsel in this action. On January 22, 2008, the lead plaintiffs filed a First Amended Complaint.
Individual motions for dismissal were filed beginning February 7, 2008. On June 30, 2008 the case was referred to the U.S. Bankruptcy Court. Then on February 25, 2009 the plaintiffs filed a motion for preliminary approval of settlement. According to the motion, the proposed partial settlement of this action is with defendants Capital Growth Financial, LLC, Alan Jacobs and Michael Jacobs. The proposed Settlement Agreement is under seal.
On May 14, 2009, the defendants’ pending motions to dismiss the First Amended Complaint were denied. On July 9, 2009, the lead plaintiffs’ motion for certification was granted. According to the Order, the class is certified under the following definition: Persons and entities, excluding the named defendants, who purchased securities of American Capital Corporation and Royal Palm Capital Group, Inc., between 8/1/02 and 5/5/06. On July 21, 2009, Chief Judge Joseph F. Bataillon signed the Memorandum and Order granting the motion for preliminary approval of proposed partial settlement agreement.
On December 4, 2009, a Proposed Notice of Proposed Partial Settlement was filed. According to the Notice, in exchange for the Partial Settlement and dismissal without prejudice of the claims asserted against them, the insurance carrier for Capital Growth Financial, LLC, Alan Jacobs, and Michael Jacobs has contributed the gross amount of $646,160.00. The Fairness Hearing was scheduled for January 26, 2010.
On February 4, 2010, the Court entered the Memorandum and Order signed by Chief Judge Joseph F. Bataillon granting the plaintiffs motion for final approval of proposed partial settlement agreement. According to the Order, the proposed partial settlement agreement with defendants Capital Growth Financial and Alan and Michael Jacobs (Filing No. 277) is approved and incorporated herein by reference. Attorneys’ fees in the amount of $215,386 and costs in the amount of $2,823.80 are approved and awarded. Co-lead counsel may withdraw attorneys fees in the amount of $215,386.00,plus costs in the amount of $2,823.80, from the settlement proceeds maintained in Mattson Ricketts interest-bearing trust account at First National Bank in Omaha, Nebraska. The remaining balance of the settlement proceeds shall be held in one or more trust accounts of the co-lead counsel for the plaintiffs.
On September 1, 2010, a motion for settlement was filed. The settlement is between the lead plaintiffs and defendant Peter Kirschner, in the amount of $5,000 in cash. On September 3, 2010, Chief Judge Joseph F. Bataillon preliminarily approved the proposed partial settlement agreement. The court will hold a fairness hearing on October 14, 2010.
On September 9 and September 24, 2010, individual defendants filed motions for summary judgment. On October 14, 2010, the pending settlement was approved. On November 11, 2010, a motion to dismiss certain defendants was filed. The motion was granted on November 12, 2010. Defendants Capital Growth Financial and Alan and Michael Jacobs are dismissed, without prejudice.
On November 22, 2010, a motion was filed for approval of a proposed settlement with defendant Stark Winter Schenkein & Co., LLP. The proposed settlement is in the amount of $340,000.00, to be paid by the defendant’s insurer. The motion was preliminarily approved on November 30. The Fairness Hearing was held on January 21, 2011, and the settlement was approved.
On March 22, 2011, a proposed partial settlement was filed with defendant John Boyce. On May 3, 2011, the proposed partial settlement agreement was approved. Pursuant to the Settlement Agreement, defendant John Boyce is dismissed as a party defendant in this case.
On April 19, 2011, a motion for settlement with Geraldine Magalnick was filed, which was granted on April 25, 2011. A Fairness Hearing is scheduled before the undersigned on May 23, 2011.
According to Judgment entered on April 25, 2011, pursuant to the Memorandum and Order 482 entered this date, it is ordered that judgment is entered in favor of Lead Plaintiffs Lyle Brehm, David Buckley, Jill Schuneman, and Rex Weldon, on behalf of themselves and all others similarly situated, and against defendants Brian Schuster, Engle & Schuster Financial, Inc., American Capital Corporation, Royal Palm Capital Group, Inc., Gerald Parker, and Liana Dobarganes Harrington, as the apparent sole heir and personal representative of Patrick Harrington, deceased, jointly and severally, in the amount of $30,352,111.00, plus interest at the rate of 6% from November 30, 2010, to the date of this order, plus interest at the legal rate under 28 U.S.C. § 1961 from and after the date of this order, plus attorneys' fees and costs.
On May 3, 2011, the proposed partial settlement agreement with defendant John Boyce is approved.
On June 2, 2011, the Court entered the Memorandum and Order signed by Chief Judge Joseph F. Bataillon approving the roposed partial settlement agreement with defendant Geraldine Magalnick. Defendant Geraldine Magalnick is dismissed as a party defendant in this case.