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In re Gilat Satellite Networks

March 25, 2009

IN RE: GILAT SATELLITE NETWORKS, LTD.,


The opinion of the court was delivered by: Charles P. Sifton (electronically signed) United States District Judge

MEMORANDUM OPINION AND ORDER

SIFTON, Senior Judge.

On January 17, 2003, eleven class actions alleging violations of federal securities laws by defendants Gilat Satellite Networks, Ltd. ("Gilat"), Yoel Gat, and Yoav Leibovitch (collectively "defendants") were consolidated in this Court and Leumi PIA Sector Fund, Leumi PIA World Fund, and Leumi PIA Export Fund were appointed lead plaintiffs ("plaintiffs"). On May 13, 2003, plaintiffs filed a Consolidated Class Action Complaint alleging violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 promulgated under the Exchange Act, 17 C.F.R. § 240.10b-5. The complaint also alleges against Gat and Leibovitch a violation of Section 20(a) of the Exchange Act. On April 19, I certified a settlement class and granted the parties' motions for preliminary approval of a proposed Settlement Agreement, preliminary approval of a Plan of Allocation of the settlement fund, and approval of the proposed manner and form of Notice to the settlement class and of the proposed Proof of Claim form. A Fairness Hearing was held on July 19, 2007 to consider final approval the settlement. On September 18, 2007, I granted the parties' motion for final approval of the Settlement Agreement. Now before the Court is plaintiffs' motion to authorize disbursement of the Net Settlement Fund to the settlement class. For the reasons set forth below, the motion is granted.

BACKGROUND

Familiarity with the underlying facts and procedural history of this case, as set forth in prior decisions of this Court, is presumed.*fn1

Brief Summary of Allegations

Defendant Gilat is an Israeli company that provides products and services for satellite-based communications networks. The Amended Complaint alleges that Gilat, its chief executive officer, and its chief financial officer artificially inflated Gilat's financial results during the class period by misrepresenting transactions in violation of accounting principles, including improper recognition of revenue on a number of transactions. Plaintiffs further allege that defendants made false and misleading statements during the class period regarding a corporation formed by Gilat. Plaintiffs allege that class members who purchased Gilat securities during the class period paid artificially inflated prices as a result of these misrepresentations. The share prices dropped once the alleged fraud was revealed. Defendants have denied and continue to deny all allegations of wrongdoing.

Settlement

Settlement of this class action was approved by a Final Judgment and Order of Dismissal with Prejudice, dated September 20, 2007 ("Final Judgment"). Pursuant to the Final Judgment, I retained continuing jurisdiction over implementation of the settlement and any award or distribution of the settlement fund created by the Amended Stipulation and Agreement of Settlement (the "Stipulation"). Final Judgment at ¶ 14. On April 19, 2007, I entered an order preliminarily approving the Stipulation and directing that notice of the proposed settlement be given to the members of the class. See Preliminary Approval Order. Commencing May 9, 2007, the Claims Administrator, The Garden City Group, Inc. ("Claims Administrator"), distributed the Court-approved Notice of Pendency of Proposed Settlement of Class Action (the "Notice") and Proof of Claim to potential members of the Class. The Claims Administrator published the Summary Notice of Pendency and Proposed Settlement of Class Action for national distribution in the Wall Street Journal on May 23, 2007, Globe on May 21, 2007, Ha'aretz on May 22, 2007, and the Jerusalem Post on May 22, 2007.

Terms of the Settlement

The settlement class includes all persons and entities who acquired Gilat common stock between February 10, 2000 and Mary 31, 2002.*fn2 Notice of Settlement at ¶ 27 ("Notice"). The settlement amount is twenty million dollars, which, combined with interest, makes up the gross settlement fund. Stipulation at ¶ 5. The net settlement fund is the gross settlement fund less all taxes, costs, fees, and expenses associated with administration of the settlement. Id. at ¶ 7. The Claims Administrator is tasked with determining each authorized claimant's pro rata share of the net settlement fund, calculating losses recognized as compensable under the settlement. Id. at ¶ 13. A "Recognized Loss" is the amount of loss recognized as compensable for any single transaction. Notice at ¶ 37.

The Plan of Allocation separates claims based on the date on which the acquired shares were purchased. Plaintiffs allege that the artificial inflation of stock prices began on or before February 10, 2000, when defendants made misleading statements. Notice at ¶ 38 (section on Plan of Allocation). The first alleged partial disclosure of the fraud occurred on March 9, 2001; following the disclosure, the share price fell. Id. Claimants who bought stock during the period from February 10, 2000 and March 9, 2001 and sold it after March 9, 2001, and before the end of the class period, have an eligible claim. However, the Plan of Allocation states that for stock purchased after February 10, 2000 and sold before March 9, 2001, there shall be no Recognized Loss, because the inflation of the stock price due to allegedly false statements did not change during that period. Id. Plaintiffs allege that the next partial disclosure of the fraud took place on March 12, 2001, the third partial disclosure of fraud took place on October 2, 2001, and the final disclosure of alleged fraud took place on May 31, 2002. Stock purchased and sold within a single period between disclosures does not give rise to a Recognized Loss pursuant to the plan of allocation. Id. Stock purchased before the commencement of the class period does not give rise to a Recognized Loss. Id. at ¶ 39.

Claimants are required to submit a Proof of Claim with supporting documentation by September 3, 2007. Stipulation at ¶ 19. The Settlement specifies that class members who do not submit timely, acceptable, and valid proofs of claim and release are not authorized claimants and will not share in settlement proceeds, but are nevertheless bound by the settlement and order and final judgment of the court dismissing the action. Id. at ¶ 17.

Distribution of the net settlement fund may only take place after: all claims have been processed and all claimants whose claims have been rejected have been notified and provided the opportunity to be heard; all objections have been resolved by the Court and all appeals resolved; all matters with respect to attorneys' fees, costs, and disbursements have been resolved by the Court; and all costs of administration have been paid. Stipulation at ¶ 23.

The Plan of Allocation provides that, if any funds remain in the net settlement fund by reasons of uncashed checks or otherwise, then, after the Claims Administrator has made reasonable and diligent efforts to have class members cash their checks, any balance remaining one year after the initial distribution of such funds shall be redistributed to class members who have cashed their checks and who would receive at least $5.00 from the redistribution. No payments are to be made on a recognized claim where the potential distribution amount is less than $5.00. Id. at ¶ 39. Notice at ¶ 43. If, any unclaimed funds remain six months after such redistribution, then the balance shall be contributed to a non-sectarian, not-for-profit 501(c)(3) organization(s) designated by agreement between the parties' counsel. Id.

Procedures Followed in Processing Claims

Pursuant to the Stipulation and my prior orders, the Claims Administrator, under the supervision of plaintiffs' Lead Counsel, determined which claims ...


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