Facts

Wayne Conlee filed a securities class action against WMS Industries Inc., Brian Gamache, Scott Schweinfurth, Orrin Edidin, and William Pfund.

WMS desinged, manufactured, and distributed video and mechanical slot machines as well as video lottery terminals. Gamache was WMS' chief executive officer, while Schweinfurth was the company's chief financial officer. Edidin was the company's president.

PLAINTIFF'S CONTENTIONS:
WMS' primary clientele were customers in the legalized gaming industries, especially casinos. Because casinos demanded maximum profitability, WMS continued to develop innovative new games to generate growth. In 2010, WMS launched Bluebird xD, a new gaming cabinet, to compliment its premium Bluebird2 gaming platform. Bluebird2 represented 82 percent of WMS' new game unit sales for the 2010 fiscal year. Bluebird xD improved on Bluebird2, and because it was smaller in size, it allowed casinos to place more of Bluebird xD in the same space. In Sept. 21, 2010, Gamache and Schweinfurth made a presentation at WMS's first Analyst Day in Chicago, Ill. The two reported that the company had and continued to post sales revenue and margin gains despite the "currently weak replacement cycle and environment for gaming products." In January 2011, WMS issued a statement assuring investors that WMS would not be adversely affected by the slow industry-wide replacement cycle. Moreover, WMS reported that the company was "solidly" on track to generate revenue and margin growth throughout the remainder of fiscal year 2011. The company later reported the need to cut its forecasted fiscal 2012 revenue estimates by $120 because it did not expect demand to recover for the remainder of fiscal 2011 or 2012. Following this, the stock price declined more than 17 percent.

Conlee contended that WMS' representations regarding the company's current business and financial conditions were materially false and misleading, causing the company's shares to trade at artificially inflated prices. The stock prices went as high as $43,92 per share despite missing Wall Street earning projections. Conlee also contended that defendants failed to disclose or recklessly disregarded true facts about the company, including the industry-wide weak replacement cycle that negatively impacted the company's sales and growth. As such, Conlee contended that WMS had no reasonable basis for its fiscal 2011 forecast given the known negative business and industry trends.

Conlee filed a class action against WMS and the individual plaintiffs for violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 of the Act. Conlee also alleged a cause of action for violation of Section 20(a) of the Act. Conlee also sought to certify a class of persons who purchased or otherwise acquired the company's stock between Nov. 1, 2010 and April 11, 2011. The court later appointed Kenneth Zeitlin as lead plaintiff. Zeitlin sought to certify a class covering the period between Sept. 21, 2010 and Aug. 4, 2011 instead of the period Conlee originally asserted. Zeitlin also alleged the same claims as Conlee.

DEFENDANTS' CONTENTIONS:
Defendants denied all allegations. Defendants also maintained that they never made any false or misleading statements to the market. It maintained that all statements made during the relevant times were truthful and not misleading.

Result

The parties agreed to settle the dispute. As part of the settlement, the court certified a class of persons who purchased or otherwise acquired WMS common stock during the period from Sept. 21, 2010 and Aug. 4, 2011. Defendants agreed to pay $3.7 million in settlement.