Harmony Gold Mining Company Limited

Case Details

Class Period: April 25, 2007 - August 7, 2007
Date Filed: April 16, 2008
Case Number: 1:08-cv-03653
Jurisdiction: Southern District of New York
icon-casetype Case Type: Securities Case

Case Summary

The Complaint brought forth claims for violations of the Securities Exchange Act of 1934 against Harmony Gold Mining Company Limited. The Complaint alleged that Harmony made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased or otherwise acquired, and/or sold certain Harmony Gold securities during the Ccass period.

Harmony is a gold producer that operates twenty two individual mines and projects across the world. The Company is incorporated in the Republic of South Africa. Harmony’s operations had grown significantly since 1995, when through a series of acquisitions, the Company expanded from a single lease-bound mine operation into a self-described “independent world-class gold producer.” As of June 30, 2007, the Company reported that it had total proven and probable reserves of approximately 53.67 million ounces of gold, and Harmony emphasized that the Company was benefitting from a rising gold price environment.

Specifically, the Complaint alleged that throughout the class period, Harmony knew and/or recklessly disregarded that the Company had materially misstated its financial results by ignoring suspense accounts in the Company’s newly established and implemented Enterprise Resource Planning (“ERP”) accounting system, that resulted in more than $34.5 million in costs and other expenses that were not reported in the Company’s Third Quarter 2007 financial results. Then, on August 6, 2007, Harmony’s Form 6-K announced that its financial results were “expected to differ significantly from … three previous quarters as well as from the analysts’ consensus.” On this news, the Company’s ADRs fell $2.45, over 18%, to close the day at $11.02. In response to additional news that the Harmony’s CEO had resigned and that Fitch placed the Company’s long-term debt default rating on Watch Negative, Harmony’s ADRs declined an additional $1.57, or over 14%, to close on August 7, 2007 at $9.45 per ADR. This closing price on August 7, 2007 represented a two-day decline in the Company’s ADRs of 29.8%, and a cumulative decline of over 43.4% from the value of the Company’s ADRs at their class period high.

On January 7, 2009, an amended complaint was filed that added significant detail and refinement to the allegations of the accounting fraud, and the ERP System’s effect on the Company’s financial results. After Harmony’s motion to dismiss the Amended Complaint was fully briefed, the Court issued an Order on March 19, 2010 denying Harmony’s motion in its entirety, finding Plaintiff had “sufficiently pled each element of its claims in the Amended Complaint and provided a sufficient factual basis to demonstrate the legal feasibility of its allegations.” Five days later, Harmony moved the Court to reconsider its denial of the motion to dismiss, which the Plaintiff opposed on April 6, 2010. The Court denied Defendants motion for reconsideration on April 27, 2010. On May 14, 2010, the Court permitted Saxena White P.A. to substitute as Lead Counsel.

On September 16, 2010, Plaintiff moved to certify the class, and on November 17, 2010, the Court granted Plaintiff’s motion. Throughout the discovery process, Saxena White analyzed over 190,000 pages of internal company documents, and confronted unique and challenging obstacles from the lack of subpoena power to compel appearance of fact witnesses that resided in South Africa, along the uncertainty of enforcing a judgment in the South African courts. On October 28, 2010, the parties jointly moved the Court to issue letters rogatory under the Hague Convention to the South African Department of Justice and Constitutional Development. The letters rogatory were required to depose fact witnesses. The Court granted the parties’ request and issued the letters rogatory on November 4, 2010.

After three-years of challenging litigation against this South African company, and with the letters rogatory still outstanding, the parties conducted a formal, day-long mediation in New York. In the months following this mediation, the parties continued negotiations through the mediator. On May 25, 2011, these discussions culminated in a $9,000,000 settlement on behalf of the class. On August 10, 2011, the Court preliminarily approved the settlement, and then on November 10, 2011, entered final judgment finding the settlement to be fair, adequate and reasonable in all respects.