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A federal judge has granted final approval of a $7 million settlement in a class action securities suit against Ravisent Technologies Inc. brought by investors who said the company used false statements to inflate the price of its stock at the time of its initial public offering. In his 32-page opinion in In re Ravisent Technologies Inc. Securities Litigation, U.S. District Judge R. Barclay Surrick of the Eastern District of Pennsylvania also awarded attorney fees equal to one-third of the settlement fund — more than $2.3 million — to plaintiffs’ lawyers from six firms who logged more than 1,700 hours on the case over four years. Sharing the fees will be four Philadelphia firms — Spector, Roseman & Kodroff, the Law Offices of Bernard M. Gross, Berger & Montague, and Barrack, Rodos & Bacine — and two New York firms, Milberg Weiss Bershad & Schulman and Kaplan Fox & Kilsheimer. The settlement stems from 11 consolidated lawsuits filed in the wake of news in early 2000 that Ravisent — a Massachusetts software company now known as Axeda Systems Inc. — was restating its financials and reporting significant losses. The suits were filed by investors who purchased stock during and immediately after an initial public offering in July 1999 in which Ravisent sold 5 million shares at $12. At the end of the IPO, Ravisent’s stock price had risen to more than $17.50, and continued to rise, selling for more than $27 by February 2000, according to the opinion. But when it came time for the company to release its audited fourth-quarter and year-end financial statements for 1999, Ravisent announced that the report would be delayed “due to discussions with its auditors about revenue recognition on some of its contracts,” the opinion stated, quoting the amended complaint. That news caused the stock price to plunge $9 in one day. In late March 2000, the company issued restatements of its second- and third-quarter financials for 1999, showing reduced revenues and larger operating and net losses. But the truly bad news came in April 2000 when the company announced its results for the first quarter of 2000, and reported a substantial decrease in revenues and increase in pro forma net loss compared to the same period in 1999, causing the stock price to tumble to $6.875, the opinion said. In assessing the fairness of the settlement, Surrick applied the so-called “Girsh factors” — named for the 1975 decision by the 3rd U.S. Circuit Court of Appeals in Girsh v. Jepson — and found that all nine factors weighed in favor of approving the settlement. Although the settlement is just a fraction of what the plaintiffs could have won if the case went to trial, Surrick found that, “in light of Ravisent’s current financial condition, a future recovery may be less valuable to the class than the benefits of the present settlement.” In a footnote, Surrick noted that the company’s closing stock price on April 15, 2005, was just 34 cents per share, and that NASDAQ has commenced administrative proceedings to delist Axeda from the stock exchange. Surrick also found that there was “clearly a substantial risk in this case that defendants would not be able to withstand a greater judgment, as Ravisent’s financial fortunes never recovered after the end of the class period.” The company’s present market value is less than $13 million, Surrick noted, and recent financial statements for 2004 shows it had a net loss of about $9.7 million on total revenues of $12.9 million. The settlement, Surrick said, is being funded entirely by Ravisent’s insurance carriers and “constitutes almost all the coverage available in the first two layers of insurance.” Surrick concluded that the additional funds that might be recoverable from the remaining insurance coverage “would not justify the necessary expenses incurred by several more years of litigation.” Looking to the maximum possible damages, Surrick found that the $7 million settlement is about 12 percent of that amount that could be awarded by a jury. “This percentage of recovery is within the range of reasonable recovery for a securities class action,” Surrick wrote, noting that a study by two Columbia University law professors found that since 1995, class action securities settlements have typically recovered between 5.5 percent and 6.2 percent of the class members’ estimated losses. ATTORNEY FEES In their motion for attorney fees, lead plaintiffs’ lawyers Deborah R. Gross and Robert P. Frutkin of the Law Offices of Bernard M. Gross, and Robert M. Roseman and David Cohen of Spector Roseman, argued that one-third of the fund should be awarded to the lawyers due to the risks in the litigation, the quality of the result achieved, and the complete lack of objection by the class. “The liability case against the defendants was strong but not without pitfalls,” they wrote in their fee petition. The accounting allegations were the “crux” of the case, the petition said, and the plaintiffs believed that they could make a strong case that Ravisent issued misleading statements, as well as proof that the company had not followed its own stated revenue recognition policy. But if the case had gone to trial, they said, it would have been a “battle of experts” in which the defendants’ experts would offer sophisticated analyses, and the conclusions of the plaintiffs’ experts “might simply be rejected by a jury as speculative or unreliable.” Surrick applied the 3rd Circuit’s seven-factor test for assessing attorney fee requests announced in the 2001 decision in Gunter v. Ridgewood Energy Corp. and found that every factor weighed in favor of awarding one-third of the fund. “The settlement fund of $7 million is a significant cash benefit to the class, especially in light of the fact that a larger settlement runs the risk of nonpayment due to Ravisent’s problematic financial condition,” Surrick wrote. “The complexity and difficulty of this litigation is substantial, as it involved numerous legal obstacles to achieving a successful resolution for the class under the [Private Securities Litigation Reform Act], including establishing causation, scienter and damages,” Surrick wrote. In the final section of the opinion, Surrick performed a “lodestar cross-check” and concluded that the requested fee was reasonable. Surrick noted that the plaintiffs’ lawyers had logged nearly 1,725 hours on the case, racking up fees of nearly $700,000 if billed at their hourly rates. After subtracting expenses of about $175,000, Surrick found that the fee request of $2.1 million results in a “multiplier” of 3.1. “Lodestar multiples of less than four are well within the range awarded by courts in this circuit,” Surrick wrote.

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