Cricket Wireless 2010 Annual Report Download - page 137

unsolicited merger proposal from MetroPCS and claims alleging illegal insider trading by certain of the individual
defendants. Leap and the individual defendants filed motions to dismiss the federal action, and on September 29,
2009, the district court granted Leap’s motion to dismiss the derivative complaint for failure to plead that a pre-suit
demand on Leap’s board was excused.
The parties in the federal action executed a stipulation of settlement dated May 14, 2010 to resolve both the
federal and state derivative suits. The settlement was subject to final court approval, among other conditions. On
September 20, 2010, the district court held a final fairness hearing to approve the settlement, and on September 22,
2010 the district court granted final approval of the settlement resulting in a release of the alleged claims against the
individual defendants and their related persons. On September 22, 2010 a judgment was issued in the federal case,
and on October 7, 2010 a dismissal with prejudice was entered in the state case. The settlement was based upon the
Company’s agreement to adopt and implement and/or continue to implement or observe various operational and
corporate governance measures, and to fund, through its insurance carriers, an award of attorney fees to plaintiffs’
counsel. The individual defendants denied liability and wrongdoing of any kind with respect to the claims made in
the derivative suits and made no admission of any wrongdoing in connection with the settlement.
Leap and certain current and former officers and directors, and Leap’s independent registered public
accounting firm, PricewaterhouseCoopers LLP, also were named as defendants in a consolidated securities
class action lawsuit filed in the United States District Court for the Southern District of California which
consolidated several securities class action lawsuits initially filed between September 2007 and January 2008.
Plaintiffs alleged that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5, and Section 20(a)
of the Exchange Act. The consolidated complaint alleged that the defendants made false and misleading statements
about Leap’s internal controls, business and financial results, and customer count metrics. The claims were based
primarily on the November 9, 2007 announcement that the Company was restating certain of its financial statements
and statements made in its August 7, 2007 second quarter 2007 earnings release. The lawsuit sought, among other
relief, a determination that the alleged claims could be asserted on a class-wide basis and unspecified damages and
attorney fees and costs. On January 9, 2009, the federal court granted defendants’ motions to dismiss the complaint
for failure to state a claim. On February 23, 2009, defendants were served with an amended complaint which did not
name PricewaterhouseCoopers LLP or any of Leap’s outside directors. Leap and the remaining individual
defendants moved to dismiss the amended complaint.
The parties entered into a stipulation of settlement of the class action dated February 18, 2010. On October 4,
2010, the court held a fairness hearing regarding the settlement and granted final approval and issued a final
judgment on October 14, 2010. The settlement provided for, among other things, dismissal of the lawsuits with
prejudice, releases in favor of the defendants, and payment to the class of $13.75 million, which included an award
of attorneys’ fees to class plaintiffs’ counsel. The entire settlement amount was paid by the Company’s insurance
carriers.
Department of Justice Inquiry
On January 7, 2009, the Company received a letter from the Civil Division of the United States Department of
Justice (the “DOJ”). In its letter, the DOJ alleges that between approximately 2002 and 2006, the Company failed to
comply with certain federal postal regulations that required it to update customer mailing addresses in exchange for
receiving certain bulk mailing rate discounts. As a result, the DOJ has asserted that the Company violated the False
Claims Act (the “FCA”) and is therefore liable for damages. On November 18, 2009, the DOJ presented the
Company with a calculation that single damages in this matter were $2.7 million for the period from June 2003
through June 2006, which amount may be trebled under the FCA. The FCA also provides for statutory penalties,
which the DOJ has previously asserted could total up to $11,000 per mailing. The DOJ had also previously asserted
as an alternative theory of liability that the Company is liable on a basis of unjust enrichment for estimated single
damages. The Company is currently in discussions with the DOJ to settle this matter.
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LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)