Beginning in October, 1994, the New York brokerage firm of Sterling Foster & Co. and its officers, along with others, engaged in a fraudulent scheme to acquire tens of millions of dollars in illicit profits through fraudulent underwriting of public offerings of six companies. Defendants distributed materially false and misleading offering prospectuses and registration statements, and then artificially inflated the market price of the securities of the Issuer defendants through the use of fraudulent, hard-sell, "boiler room" sales practices.
Five Sterling Foster defendants were found guilty of securities fraud after a trial, and sixteen more pled guilty and have been sentenced or still face sentencing. Pursuant to the Government's efforts, defendants paid more than $14 million in restitution, which has been distributed to class members. Because investigation by counsel indicates that the primary defendants apparently have exhausted their financial resources as a result of the Government prosecutions, Labaton Sucharow's efforts, as co-lead counsel in the related class action litigation, focused on the "secondary" defendants, including the attorneys who participated in the preparation of the fraudulent prospectuses and registration statements in five of the six public offerings.
After long and difficult negotiations (defendants' insurance carriers argued that they had no liability due to the intentional nature of the allegations against their insureds), Labaton Sucharow was able to reach a $2.2 million settlement with four defendants. On December 11, 2002, after conducting a full hearing on the matter, Judge Arthur D. Spatt of the Eastern District of New York granted final approval of the partial Class Action settlement. The court noted that class members' strong support of the settlement can be judged from the fact that not a single class member objected to it.
Subsequently, the court held a hearing on October 27, 2006 and approved the $1.4 million settlement of the remaining claims. On appeal, the Second Circuit upheld the settlement with respect to certain of the settling defendants.