Troubled by a number of longstanding legal issues, Starnet Communications International took a major step toward getting back on track yesterday by settling a handful of class action lawsuits that had been filed against the company and some of its former executives.
Three class action suits were filed in the Delaware District court. All of the cases alleged that Starnet officials violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as SEC Rule 10b-5 promulgated thereunder.
Specifically, the cases alleged that between the dates of March 11, 1999 and August 20, 1999, Starnet (now a subsidiary of World Gaming plc) issued materially false and misleading statements concerning the nature of the company's business, and concealed potential liabilities stemming from its operations.
During that period, several top officers and directors of the company sold thousands of shares of Starnet common stock. The complaint alleges that the shares were sold while the officers and directors were in possession of "material adverse, undisclosed information."
One of the cases, which were all merged into one class-action suit, claimed that insider trading brought a great deal of financial windfall for a privileged few.
"Prior to the disclosure of the adverse facts described above, certain insiders sold thousands of shares of Starnet common stock to the investing public at artificially inflated prices and realized over $3.5 million in proceeds from these insider trading activities," the suit alleged.
Yesterday Starnet signed a memorandum of understanding to settle all class action suits filed against the company in Delaware since late 1999. The legal troubles were just part of a host of troubles for the company within the last couple of years.
The firm went through three CEOs over a two year period, but the current CEO, Michael Aymong, says the settlement is an important step for the continuing growth of the company.
"Today's settlement is a major accomplishment that will have a positive impact on the company going forward. I am glad to have it behind us," he said. "This settlement is not an admission of guilt or wrongdoing. It's about continuing our efforts to significantly grow the business and dramatically increase shareholder value."
Aymong joined World Gaming in April of this year, and since that time the company has taken a number of steps to improve productivity, enhance product development and sales capabilities and augment the company's management structure.
The memorandum of understanding was reached with co-lead counsel for the plaintiffs and class members. The settlement will see the issuance of 1,050,000 World Gaming shares, with a guaranteed minimum value of $1,050,000, together with payment of costs, not exceeding $50,000, and payment of administrative expenses, not exceeding $50,000. The settlement reflected in the memorandum of understanding is subject to formal notification to the class of shareholders and court approval.
Aymong also felt it was crucial for his company to settle the case by floating shares to the plaintiffs instead of going for a cash settlement. Not only is the firm out less cash, but he feels the settlement verifies the stability of the future for World Gaming because it shows that the plaintiffs were happy with the stock.
"We believe that our ability to reach a share-based settlement is a strong vote of confidence in World Gaming and its current business direction," Aymong said. "We continue to strengthen our leadership position in the industry everyday and the elimination of this issue is one more powerful step forward."