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On June 22, 2007 Judge Sandoval entered an order consolidating three similar actions against Sunterra Corporation. On August 21, 2007 lead plaintiff Employees' Retirement Group filed their consolidated complaint against the defendants alleging that Sunterra and its two top officers violated §10(b) and §20(a) of the 1934 Act and Rule 10b-5.
According to a press release dated July 12, 2006, the complaint charges that Sunterra and certain of its officers and directors violated Sections 10(b) and 20(a) of the Securities and Exchange Act by issuing materially false and misleading financial results for the fiscal years ended December 31, 2002 to September 30, 2005 and the first quarter ended December 31, 2005.
Specifically, the complaint alleges that on or around March 27, 2006 the Company announced that it had terminated Grant Thornton as its independent auditor. On April 10, 2006, Grant Thornton notified the SEC by letter that it disagreed with Sunterra's statements concerning Grant Thornton's termination. Specifically Grant Thornton asserted that an email it had received from a former employee alleging accounting improprieties in Sunterra's European operations was a reportable event, contrary to the representation that Sunterra had made to the SEC on March 27th. On May 2, 2006, the Company terminated its Managing Director of Sunterra Europe.
On May 3, 2006 the Company announced that its financial results for the fiscal years ended December 31, 2002 to September 30, 2005 and the fiscal quarter ended December 31, 2005 contained material inaccuracies and should no longer be relied upon.
The complaint further alleges that on or around June 22, 2006, the Company announced that it had placed its CEO on administrative leave pending the completion of the Company's investigation into the Company's accounting practices and the allegations by the former employee. That same day, the Company announced that its CFO had resigned. Subsequently, on July 6, 2006 the Company's stock was de-listed from the Nasdaq. As a result of these adverse events, the Company's stock has declined nearly 50%.