U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19535 A / January 20, 2006
Securities and Exchange Commission v. i2 Technologies, Inc., Civil Action No. 3:04-CV-1250, U.S.D.C./Northern District of Texas (Dallas Division)
SEC seeks to distribute $10 million civil penalty to injured investors in i2 Technologies, Inc.
On January 19, 2006, the court overseeing the Securities and Exchange Commission's accounting fraud suit against i2 Technologies, Inc. granted the Commission's request to publish notice of its proposal to distribute to injured investors the $10 million civil penalty and disgorgement that i2 paid to settle the Commission's charges. Any person wishing to comment on or object to the Commission's motion has until February 17, 2006 to file written objections with the court, i2's counsel and the Commission's counsel, at the addresses below.
In its civil suit and related administrative proceeding against i2, the Commission alleged that, for the four years ended December 31, 2001 and the first three quarters of 2002, i2 misstated approximately $1 billion of software license revenues. As a result, i2's periodic filings with the Commission and earnings releases during this period materially misrepresented i2's revenues and earnings. The Commission further alleged that i2's conduct violated the antifraud, reporting, record-keeping and internal controls provisions of the federal securities laws. In June 2004, i2 settled these charges without admitting or denying the Commission's substantive findings or allegations. As part of that settlement, i2 paid a $10 million civil penalty and nominal $1 disgorgement. It also consented to a Commission order to cease-and-desist from such violations. See Litigation Rel. No. 18741 (June 9, 2004).
In a motion filed January 6, 2006, the Commission asked the court to establish a Fair Fund under Section 308 of the Sarbanes-Oxley Act of 2002, to hold the civil penalty, disgorgement and accrued interest. The Commission has further requested that, after a tax administrator files any reports on the Fair Fund required by law, the Fair Fund be transferred to and joined for distribution with an approximate $85 million settlement fund established in the private securities class action styled Scheiner v. i2 Technologies, Inc., Civil Action No. 3:01-CV-418-H, in the United States District Court for the Northern District of Texas, Dallas Division. The Commission's proposed order provides that no part of the Fair Fund will be used to pay the private class attorneys' fees or the distribution agent's fees.
In its motion, the Commission argues that its proposed plan is the most efficient way under the circumstances to distribute the Fair Fund to injured i2 investors. Joining the Fair Fund with the private class action settlement proceeds is appropriate because the wrongdoing alleged in both cases is substantially identical, both in time periods covered and type of wrongdoing. Such joinder will avoid unnecessarily duplicating distribution costs such as postage, printing and distribution agent fees, which could consume a substantial portion of the Fair Fund, given its size. Indeed, as proposed by the Commission, joining these funds for distribution purposes will avoid taxing the Fair Fund with the distribution agent's fees, a result that would not be possible were the Fair Fund to be distributed by itself.
Any person wishing to comment on or object to the Commission's motion must do so in writing. Any objections must be filed by February 17, 2006 in the case styled Securities and Exchange Commission vs. i2 Technologies, Inc., Civil Action No. 3:04-CV-1250, in the United States District Court for the Northern District of Texas (Dallas Division), and served on counsel for i2 and the Commission. The addresses for the court and Commission counsel are:
To the court:
United States District Clerk
Northern District of Texas
1100 Commerce, Room 1452
Dallas, Texas 75242
To i2's counsel:
Wallace L. Timmeny
Dechert, LLP
1775 I Street, N.W.
Washington, DC 20006-2401
To the Commission's counsel:
Toby M. Galloway, Esq.
Securities and Exchange Commission
801 Cherry Street, Unit #18
Fort Worth, Texas 76102
SEC'S Unopposed Motion for Approval of Distribution Plan