The law firm of Milberg Weiss Bershad Hynes & Lerach LLP reported that a class action lawsuit was filed on Aug. 8 on behalf of purchasers of the securities of Aon Corporation between May 4, 1999 and Aug. 6, 2002, inclusive.
The action is pending in the United States District Court, Northern District of Illinois, Eastern Division, against defendants Aon, Patrick G. Ryan and Harvey N. Medvin.
The Complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between May 4, 1999 and Aug. 6, 2002, thereby artificially inflating the price of Aon securities.
Throughout the Class Period, as alleged in the complaint, defendants issued numerous statements and filed quarterly and annual reports with the SEC which described the company’s earnings and financial performance.
The complaint alleges that these statements were materially false and misleading because they failed to disclose and/or misrepresented the following adverse facts, among others: (i) that the company had materially overstated its net income by $27 million in 1999, by $24 million in 2000 and by $5 million in the first quarter of 2002; (ii) that the company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (iii) that as a result, the value of the company’s net income and financial results were materially overstated at all relevant times.
On Aug. 7, 2002, before the market opened for trading, Aon informed the market among other things, that: (a) it had failed to meet analysts’ expectations on its earnings for the second quarter by a wide margin; (b) because of the slumping financial markets, it had canceled a spinoff of its insurance underwriting businesses to shareholders; and (c) the SEC had began an investigation of its accounting and was questioning several items in the company’s accounts, including the reporting of investment write-downs, the timing of some costs and a reinsurance recoverable item and the decision not to consolidate certain special purpose vehicles.
Aon also stated that, if the SEC says it is necessary, it will have to restate its earnings for the past three years, and reduce its net income by $27 million in 1999, by $24 million in 2000 and by $5 million in the first quarter of 2002.
Following this report, shares of Aon fell $6.43 per share to close at $14.77 per share, a one-day decline of 30.3 percent, on volume of more than 20 million shares traded, or more than 20 times the average daily volume.