In re IMAX Securities Litigation

587 F. Supp. 2d 471 (2008)

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In re IMAX Securities Litigation

United States District Court for the Southern District of New York
587 F. Supp. 2d 471 (2008)

Facts

IMAX (defendant), a company specializing in movie-theater systems, reported strong financial results for several consecutive fiscal years. However, investors (defendants) became aware of an inquiry from the United States Securities and Exchange Commission (SEC) into the timing of IMAX’s recognition of revenue from the sale of its theater systems. IMAX’s stock plummeted. Months later, IMAX filed its Form 10-K for the previous fiscal year. The form included a restatement of IMAX’s financial policy for the four previous fiscal years, extending the point at which revenue was recognized to the public opening of the theater in which the IMAX system was installed or a written customer acceptance of the IMAX system. Revenue from the sale of several systems, which had been reported after the installation of individual component parts, was shifted to reflect the new policy. The effect was to move revenue for 30 installation transactions—representing tens of millions of dollars—to a period later than initially reported. A series of legal actions by investors were consolidated into a securities-fraud class action in federal district court. The investors provided evidence that IMAX officers disregarded generally accepted accounting principles by employing an aggressive accounting policy under which revenues were intentionally recognized too early. IMAX moved to dismiss for failure to state a claim.

Rule of Law

Issue

Holding and Reasoning (Buchwald, J.)

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