The U.S. Court of Appeals for the Second District has reversed a lower court decision that ordered GalaxiWorld.com to pay $22 million for defaulting in a shareholder class-action lawsuit. According to the court's May 10 ruling, federal Judge Robert P. Patterson Jr. of the U.S. District Court for the Southern District of New York abused his discretion in finding the company in default.
The company originally faced fraud charges for allegedly trying to attract new investors by jacking up its stock price. While fighting the charges, the company was hit with a lien by its own counsel, Proskauer Rose, as part of a billing dispute. In January 2000, the attorneys were granted a motion permitting them to withdraw as the defendant's counsel.
Although the company was able to contract new counsel in the interim, the case was rushed through court. An early January hearing was missed by company officials because they didn't receive notification to appear until after the scheduled date of the hearing. A second hearing was then set for January 26, 2000, whereupon Patterson granted the original counsel's request for a motion requiring the defendants to pay attorneys fees. The judge also handed down a default judgment against GalaxiWorld.com for the fraud case, ordering the company to pay $22 million.
GalaxiWorld.com appealed the decision, and won.
While fighting off a stock fraud charge would seem to be enough of a battle, a few officials from GalaxiWorld.com were additionally found guilty in a separate case. (See "Canadian Pair Charged in U.S.") Last September, Jack Banks and Larry Weltman, who served as top executives for the company, were convicted of defrauding a
British Bank of $32 million and slapped with $1million in fines. Both have been put on five years probation and forbidden from stepping foot again in the United States.
The U.S. Court of Appeals decision can be read by clicking here.