The Genesee County Employees' Retirement System was lead plaintiff in a securities fraud class action in the U.S. District Court for the District of Nebraska against Transaction Systems Architects, Inc. ("TSA"), William E. Fisher, Gregory J. Duman, Dwight G. Hanson, David C. Russell, and Edward Fuxa. Genesee alleges that between January 21, 1999 and November 18, 2002, TSA reported tens of millions of dollars in earnings that did not exist and concealed tens of millions of dollars of losses that did exist. Among other things, TSA intentionally or recklessly recognized more than $145 million in revenue prematurely and improperly and in clear violation of generally accepted accounting principles ("GAAP"), which artificially inflated the price of TSA stock.
On May 29, 2002, KPMG LLP replaced Arthur Andersen LLP as TSA's outside auditor after Andersen lost its right to audit public companies. Only two and half months later, TSA announced that (a) it would reaudit its financial statements for 1999, 2000 and 2001, (b) the reaudits would likely result in the restatement of TSA's financial statements, (c) KPMG was not able to certify the accuracy of TSA's interim financial statements for the third quarter of 2002, and (d) Duman, TSA's Chairman of the Board, had resigned the day before. On November 19, 2002, TSA announced that it would restate its financial statements for the fiscal years ended September 30, 1999, 2000 and 2001, as well as its previously issued 2000, 2001 and 2002 quarterly results, because, among other things, it improperly recognized revenue in conjunction with its software licensing arrangements.
In its restatement filed on January 13, 2003, TSA essentially admitted that it violated more than a dozen provisions of GAAP, most of which are derived from very basic accounting principles such as revenue recognition. Cumulatively, from 1999 through 2001, TSA reduced its reported net revenue by more than $145 million.
On December 15, 2003, Judge Joseph F. Bataillon denied defendants' motions to dismiss in substantial part, upholding Genesee's claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder as against TSA and all but one of the named individual defendants. Genesee argued that (a) TSA's decision to restate was tantamount to an admission that its originally reported financial statements were materially false and misleading, (b) the GAAP principles violated were basic and at least one practice violated TSA's own internal revenue recognition policies, and (c) given the magnitude of the restatements and the speed with which KPMG determined they were necessary, the individual defendants must have been aware of the facts and circumstances leading to the issuance of the false financial statements.
On March 7, 2007, following a Fairness Hearing, the Court issued a Memorandum and Order and Final Judgment and Order of Dismissal approving the settlement of this action for $24.5 million in cash and awarding attorney's fees and expenses to lead counsel and lead plaintiff Genesee. The deadline for class members to submit Proofs of Claim was April 24, 2007.