A settlement has been reached in the class action suit filed against ECI Telecom (Nasdaq: ECIL) after the Israeli company restated its financial results for the first nine months of 2001.
A compromise agreement was submitted to a Virginia court on Friday which does not name the sum ECI has agreed to pay plaintiffs, however it is estimated that the deal is worth tens of millions of dollars. It had earlier been estimated that ECI would be forced to pay hundreds of millions of dollars, however, due to the early settlement, before the evidence stage of the trial, the sum is expected to be much lower.
On February 14 2001, the company announced a restatement of financial results due to new revenue recognition policy mandated by SEC regulation SAB-101. Plaintiffs alleged that ECI presented itself as a growing company with great demand for its products, which was reflected in its share price as it hit a $40 peak. However, they argue that it was became clear in December 2000 that this was not the case as the company surprised with an earnings warning for Q4. The company informed the public that demand for certain products had eroded while demand for new product lines had failed to ramp up at the projected pace.
In February 2001, the company further adjusted its Q4 projections, attributing the change to SAB-101 and noting a drop in sales and one-time charges related to the split up into divisions. The law suit charged management with ignoring data and failing to report to the public, allowing the share to trade based on incomplete picture of the company¿s state. The suit demanded the company reimburse investors for damages incurred as the result of choosing to buy the share based on the incomplete information it released.