International Rectifier Corporation Case 04/17/2008
International Rectifier Corporation Case 04/17/2008: UPDATE
International Rectifier Corporation (NYSE:IRF) announced that it has reached an agreement in principle to settle a securities class action lawsuit pending against the Company and certain of its former officers or directors, ..Civil Action No. 07-02544-JFW (VBKx), in the United States District Court for the Central District of California (the "Litigation”). The Litigation was originally filed against the Company and certain of its former officers and directors in April, 2007. The putative class consists of purchasers of Company stock (excluding insiders) during the period July 31, 2003 through February 11, 2008.
The settlement is subject to negotiation and execution of a formal settlement agreement and is dependent upon final approval by the United States District Court for the Central District of California. The proposed settlement would resolve all class members’ claims against the Company and certain of its former officers and directors. It would provide for a payment to the plaintiffs of $90 million, of which $45 million is to be paid by the Company’s insurance carriers and $45 million by the Company.
Class members will receive notice and have a right to object to and/or opt out of the settlement. Final consummation of the settlement will occur upon the entry of final judgment by the court approving the settlement as fair to all class members. The timing of approval process is dependent on the court’s calendar. However, the Company expects that the approval process will be completed before the end of the calendar year 2009.
"The proposed settlement of this class action lawsuit is a significant step in our efforts to resolve the legacy legal issues of the Company,” said Oleg Khaykin, President and Chief Executive Officer of International Rectifier. "We are pleased to have an agreement in principle so we can focus our time and efforts on core activities and the growth of our business.”
A press release dated August 12, 2008 announced that the U.S. District Court for the Central District of California issued an order granting International Rectifier Corp.’s motion to dismiss, without prejudice, a consolidated securities fraud class-action suit filed against the company, according to the company’s Aug. 1, 2008 Form 10-Q filing with the U.S. Securities and Exchange Commission for the quarter ended March 31, 2008. Following the company’s disclosure on April 9, 2007, that its Audit Committee was conducting an internal investigation into certain revenue recognition matters, a series of putative class- action lawsuits was filed against International Rectifier Corp. in the U.S. District Court for the Central District of California. The Co-Plaintiffs filed a consolidated class action complaint on Jan. 14, 2008, which purported to extend the Original Class Period by nearly two years, from July 31, 2003, to August 29, 2007, and added claims based upon the company’s disclosures that certain former officers improperly allocated operating expenses as restructuring charges, improperly assigned tax liability from higher to lower tax jurisdictions and improperly accounted for tax benefits associated with the granting of stock options.
According to a press release dated April 18, 2007, the Complaint alleges that during the Class Period, defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by publicly issuing a series of false and misleading statements regarding the Company’s business and financial results, thus causing IRF’s common stock to trade at artificially inflated prices. In particular, the Complaint alleges that, unknown to investors, during the Class Period, defendants knew or recklessly disregarded that IRF’s: (i) revenues, (ii) gross profits (iii) earnings, and (iv) accounts receivable were false and misleading, in violation of generally accepted accounting principles. In addition, the Complaint alleges that the Company’s internal controls were inadequate.
The Complaint further alleges that on April 9, 2007, before the markets opened, IRF disclosed, among other things, that an internal investigation at the Company revealed “accounting irregularities” at one of the Company’s foreign subsidiaries. The Company further disclosed that the accounting irregularities included among other things premature revenue recognition of product sales. In addition, according to the Complaint, based on an interim report of the investigation, the Audit Committee of the Board of Directors concluded that the Company’s financial statements for the quarters ended December 31, 2006, September 30, 2006, March 31, 2006, December 31, 2005 and September 30, 2005, and for the year ended June 30, 2006, should no longer be relied upon. Furthermore, the Complaint alleges that the Company cited “material weaknesses in the internal control over financial reporting at a foreign unit.”
On April 9, 2007, in reaction to IRF’s surprising disclosure, its shares declined from $38.80 per share at the close of trading on April 5, 2007, to close at $35.97 per share, a decline of $2.83 per share or approximately 7.3%, on unusually heavy volume.
The Complaint also alleges that certain individual Defendants collectively sold approximately 364,000 IRF shares at artificially inflated prices for proceeds of approximately $13 million.