Court Approves $3.8 million settlement with InfoSonics (IFON)
On May 5, 2009, the United States District Court for Southern California entered an order approving the settlement of the consolidated securities class action lawsuit entitled In Re: InfoSonics Corporation Securities Litigation, No. 06 CV 1231. This action was initially filed on June 13, 2006. Plaintiffs brough the action on behalf of purchasers of InfoSonics securities between February 6, 2006 and August 9, 2006, inclusive (the “Class Period”), seeking to recover damages under the Securities Exchange Act of 1934 (the “Exchange Act”).
The operative Complaint alleges that InfoSonics and its top officers engaged in a scheme to defraud InfoSonics investors in violation of the federal securities laws by misleadingly extolling the “success” and “strong demand” in the U.S. market of InfoSonics’ flagship product, the VK Mobile 530 phone and by improperly delaying until Monday, June 12, 2006, the disclosure that InfoSonics had to restate its publicly filed financial statements for the first quarter ended March 31, 2006 (“1Q06”).
With regard to the VK Mobile 530 phone, the Complaint alleges that the VK530 phone had not only failed in the U.S. but had “derailed” InfoSonics’ U.S. sales in that Defendants concealed the fact that a $6 million sale of VK Mobile 530 phones to InfoSonics’ largest U.S. customer, Centennial Wireless (“Centennial”), had been a complete “debacle” as a result of repeated defect issues that arose in late October 2005, before the class period began, and culminated with Centennial having “pulled off the shelves” all VK 530 phones by late February 2006.
With regard to the restatement of InfoSonic’s 1Q06 financial results, the Amended Complaint alleges that this restatement was required as a result of defendants’ prior improper accounting for warrants, that SEC regulations require a company to disclose a restatement within four business days of determining that investors should no longer rely on previously filed financial statements, and that InfoSonics’ CFO, Klausner, knew that a restatement of InfoSonics’ 1Q06 financial statements was necessary no later than May 22, 2006. The Amended Complaint further alleges that by delaying the announcement of the restatement — while InfoSonics’ stock price rose to record highs — defendants were able to sell nearly $1.5 million worth of their personal holdings at substantially inflated prices.
When InfoSonics announced, on Monday, June 12, 2006, that it would restate its 1Q06 results due to InfoSonics’ improper accounting for warrants, InfoSonics’ stock fell more than 28%. When InfoSonics announced, after the close of the market on August 9, 2006, that its quarterly net income had fallen and that U.S. sales had declined dramatically — a decline specifically due to the “debacle” with Centennial — shares of InfoSonics fell more than 26%.
The details of the Settlement are described in the Notice of Pendency and Proposed Settlement oF Class Action, Application for Attorneys’ Fees and Expenses and Fairness Hearing. In order to be eligible to share in the recovery, you were required to submit a Proof of Claim form postmarked no later than June 4, 2009 if mailed by first-class mail, or received by June 11, 2009 if returned by other means.