Koss Corporation Hit by Investor Lawsuit

March 2012 (Update) -- Proposed $1 million settlement. According to the Notice:

Security and Time Period: Koss Corporation (“Koss”) securities (stock symbol: KOSS) purchased or acquired between July 12, 2005, and December 21, 2009, inclusive (the “Class Period”).

Settlement Fund: $1,000,000 in cash. Your recovery, if any, will depend on the number of shares of Koss securities you, and other Class Members1 who file claims, purchased and sold and the prices at which you, and the other Class Members who file claims, purchased and sold those shares. The estimated average recovery per share will be approximately $0.71 per share before deduction of Court-approved fees and expenses and costs of notice and claims administration.2

Reasons for Settlement: The case has been litigated since January 2010. The Lead Plaintiff and Lead Counsel believe that the Settlement provides the Class with a benefit now, without the risk and delay of years of further uncertain litigation, including disposition of summary judgment motions, a contested trial and likely appeals, with the possibility of no recovery at all.

The Lead Plaintiff alleges that Koss’s securities stock price was artificially inflated as a result of a series of untrue or materially misleading statements that failed to disclose a massive embezzlement of funds from the company by Sujata Sachdeva. Lead Plaintiff further contends that Defendants made these statements knowing them to be false or misleading, or recklessly disregarding their false or misleading natures, and that investors suffered injury as a result of the alleged inflation. However, Koss Corporation and Michael J. Koss (each a “Settling Defendant,” and together, the “Settling Defendants”) have denied and continue to deny each and all of the allegations made and claims brought by Lead Plaintiff, maintain that they have meritorious defenses, and contend that many of the factual allegations are materially inaccurate. In addition, the Court has dismissed the fraud claim asserted against Michael Koss, holding that the Complaint failed to allege a motive to commit securities fraud, or to support a compelling inference of recklessness, as to Mr. Koss. Nonetheless, the Settling Defendants have concluded that further conduct of the Litigation would be protracted and expensive, and that it is desirable that the Litigation be fully and finally settled in the manner and upon the terms and conditions set forth in the Stipulation of Settlement. The settlement shall in no event be construed as, or deemed to be evidence of, an admission or concession by the Settling Defendants with respect to any claim of any fault or liability to the Class Members in this Litigation.

January 16, 2010 -- An investor in Koss Corp. (KOSS) shares filed a lawsuit in the United States District Court for the Eastern District of Wisconsin on behalf of investors in Koss Corporation (Public, NASDAQ:KOSS) securities, who purchased or otherwise acquired the stock of Koss Corporation ("Koss" or the "Company") (NASDAQ: KOSS) between July 12, 2005 and December 21, 2009, against Koss Corp. over alleged violations of Federal securities laws.

According to the complaint the plaintiff alleges that that Koss Corp and certain of its current and former executive officers violated federal securities laws by issuing between July 12, 2005 and December 21, 2009 false and/or misleading statements and/or failed to disclose material information. On December 21, 2009, Koss Corp. announced that NASDAQ halted trading of Koss Corp. stock at the its request after it discovered certain unauthorized transactions at Koss Corp., and the Board of Directors had appointed a special committee of independent directors to lead an internal investigation to determine the effect of the transactions on Koss’s financial statements. Then on December 24, 2009, Koss Corp. announced that it had discovered these “unauthorized transactions” potentially totaling as much as $31 million. As a result of this discovery, Sujata Sachdeva, the Company’s Vice President of Finance and Secretary, was terminated and two members of the Company’s accounting staff were placed on unpaid administrative leave. The company has further disclosed its shareholders should not rely on financial statements since the end of its 2005 fiscal year and that it plans restatements for at least its last three fiscal years.

According to reports, the two dismissed employees charged millions of dollars worth of merchandise to personal credit card accounts which they paid using several large wire transfers originating from a Koss bank account. The Koss Corp’s Chief Executive Officer reportedly found several large piles of merchandise in the office of at least one of the two dismissed employees. Koss Corporation, located in Milwaukee, WI, is engaged in the design, manufacture and sale of stereo headphones and related accessory products. The Company’s products are sold through audio specialty stores, the Internet, direct mail catalogs, regional department store chains, discount department stores, military exchanges, prisons and national retailers under the Koss name and dual label. On January 11, 2009, when trading in Koss stock resumed, shares of Koss Corp.’s stock (KOSS) declined $1.32 per share, approximately 24%, to close on January 11, 2010, at $4.19 per share. Koss Corporation reported on June 30, 2008 for the past 12 months a Total Revenue of $46.94million with a Net Income of $4.49million and on June 30, 2009 for the past 12 months a Total Revenue of $38.18million with a Net income of $1.98million. Shares of Koss Corp. traded recently at $5.51 per share, down from its 52weekHigh of $8.12 per share, over $10 per share in 2007, and over $14 per share in 2006.