Alloy Settles Class-Action Suit for $6.75 Million

Alloy, Inc. has one more court date related to its $6.75 million settlement of a class-action lawsuit.

In December, Alloy settled the class-action suit that was filed in March 2003, charging the marketing and media company with misrepresenting its financial results to drive up its stock price.

Alloy faces a Feb. 25 hearing to finalize the settlement of a second, related suit, filed in October 2003 on behalf of Alloy against six directors, alleging that these executives misrepresented Alloy’s financial results from March 2001 through January 2003.

A preliminary settlement was reached in December on the second suit. Alloy agreed to change its auditing and financial-reporting practices, but admits no wrongdoing. There’s no compensation to stockholders in this suit, although Alloy has paid $198,000 to cover the plaintiff’s legal fees.

Alloy paid the $6.75 million into an escrow account last summer; it will be distributed to stockholders by the plaintiffs’ lawyers.

As part of the settlement, Alloy will:

  • make its general counsel report to its lead non-executive director instead of to an officer of Alloy
  • limit the type of work its outside auditors can perform for Alloy and its officers and directors
  • implement an internal audit function
  • establish continuing education requirements on corporate governance and business ethics
  • require the board to annually evaluate Alloy’s CEO and president
  • require the board to periodically assess corporate governance policies

Alloy already has restructured its board to establish a majority of independent directors; established a whistleblower hotline; and given its Audit Committee sole power to hire and fire the company’s outside auditors, and the authority to retain its own counsel and other advisors.

Alloy was PROMO’s Agency of the Year for 2004. It ranked No. 2 in the listing with 2003 net revenues of $49.6 million, up 187% from 2001.

Alloy reported revenues of $284.4 million for the first nine months of 2004, up 11.2% over the same period in 2003. Merchandise revenues rose 30.8% to $142 million; sponsorship and other revenues fell 3.2% to $142.4 million.