The Complaint brought forth claims for violations of the Securities Exchange Act of 1934 against ModusLink Global Solutions, Inc. (“ModusLink” or the “Company”), and certain of its senior executives. The Complaint alleged that Defendants 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 ModusLink securities during the Class Period.
ModusLink is a publicly traded global supply chain service company that procures raw materials for its clients. The Company charges a percentage mark-up to its clients, which amounts to its profit margin. ModusLink aggregates client orders for a given product, purchasing a large quantity of the product from suppliers and then fulfilling client orders at a mark-up pursuant to contracts with individual clients. In some situations, ModusLink received rebates from its suppliers when it purchased a large volume of products. ModusLink’s clients did not receive notice when ModusLink had received a rebate from suppliers. ModusLink would deceive its customers by revising purchase orders and invoices to reflect the original price of goods rather than the discounted prices that reflected rebates or discounts to ModusLink.
Eventually, certain of ModusLink’s clients caught on to the alleged scheme and launched audits of ModusLink’s practices that revealed the extent of the underlying fraud. By the end of 2010, two of the Company’s largest clients conducted audits of their accounts at ModusLink. When the truth of the fraud was revealed the Company announced a wide ranging restatement of its financials for the fiscal years of 2007 to 2011 and the first two quarters of 2012. The restatement of earnings demonstrated that ModusLink had a net income of $500,000 during from 2007 to 2011 instead of the $18.4 million that it had initially reported. This announcement resulted in the Company’s stock price dropping 34.74 percent.
Saxena White, serving as sole Lead Counsel, defeated Defendants’ Motion to Dismiss. In noting that Defendants’ primary challenge to Plaintiffs’ complaint was whether Plaintiffs had demonstrated that the Individual Defendants acted with the requisite state of mind, the Court held: “Plaintiffs have . . . not only provided the Court with allegations by confidential witnesses that support a contemporaneous knowledge of the alleged wrongdoing as well as motive and opportunity allegations, but have also provided the Court with a litany of other allegations bearing on the issue of scienter.” The Court accordingly denied Defendants’ motion in its entirety on March 26, 2014.
The parties then entered into the discovery phase of the litigation and began discussions towards a possible resolution of the action, including a full-day mediation session on July 24, 2014. As a result of these discussions, the parties agreed to a $4,000,000 settlement to resolve the claims for the benefit of the Class. On November 24, 2014, the Court preliminarily approved the settlement, and then on March 11, 2015, entered a final judgment finding the settlement to be fair, adequate and reasonable in all respects.