Xybernaut Corp. Case 04/15/2005
On February 2, 2007 plaintiffs filed their consolidated complaint Xybernaut Corporation and defendants responded with motions to dismiss. The judge entered an order of judgment in favor of two individual defendants on June 8, 2007 and then stayed the entire case until further notice on July 3, 2007.
As summarized by a law firm’s web site, Xybernaut filed for bankruptcy in August, 2005. The securities litigation was stayed as a result of the bankruptcy filing and the action was recently transferred to the Eastern District of Virginia. Plaintiffs have filed motions to lift the stay in order to obtain certain documents. A hearing on Plaintiffs’ motion to lift the stay is pending before the Bankruptcy Court. Plaintiffs have continued to aggressively investigate the claims against Xybernaut. As a result of these efforts, Plaintiffs are drafting an Amended Complaint to file in the securities litigation. Also, pending before the Court are motions for Lead Plaintiff and Lead Counsel.
According to a press release by a law firm a shareholder filed on May 9, 2005 a lawsuit in the United States District Court for the Eastern District of Virginia against Xybernaut Corp. (or the “Company”) and several of its officers and directors (collectively “Defendants”) which alleged that Defendants made materially false and misleading statements between May 10, 2002 and April 8, 2005, inclusive (the “Class Period) in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”).
Specifically, the lawsuit alleged that the Company’s wholly insufficient internal controls allowed its then-Chief Executive Officer, amongst others, to improperly use a substantial amount of Xybernaut funds for personal expenses. In addition, it was alleged that senior management entered into major transactions in violation of Company’s internal control policies and concealed material financial conditions from the Company’s Board of Directors (the “Board”). Likewise, it was alleged that certain members of the Company’s senior management failed to disclose to the Audit Committee and Board written correspondences by its then-Chief Financial Officer outlining serious concerns over the breakdown of the Company’s internal controls. Finally, the lawsuit alleged that certain Defendants affirmatively impeded the Audit Committee’s investigation into the alleged fraud.
In April, 2005, the Company’s Chief Executive Officer and Chief Operating Officer were removed as officers and directors of the Company and, on July 25, 2005, Xybernaut filed a Chapter 11 bankruptcy petition with the United States Bankruptcy Court for the Eastern District of Virginia. Throughout the bankruptcy proceedings, the law firm was extremely active in protecting the rights of Xybernaut shareholders.
Then, after defeating several motions to dismiss the class action complaint, the law firm was able to reach a settlement with the Defendants. In total, the class received an all cash settlement of $6,300,000, which received final approval from the Court on or about February 20, 2008. The law firm believes this was an outstanding result, especially considering that the Company was bankrupt and was no longer a publicly-traded company.