Bally Total Fitness Securities Litigation

The lawsuit alleges that Bally and the Individual Defendants reported false financial results in publicly disseminated financial statements for nearly five years, leading to two separate restatements of Bally's financial statements. The lawsuit alleges that Bally and the Individual Defendants intentionally or recklessly overstated revenue and net income, understated expenses, misrepresented that Bally's financial statements were presented in accordance with Generally Accepted Accounting Principles (GAAP), and misrepresented that Bally's internal controls were effective and reliable. Further, the lawsuit alleges that Ernst & Young performed reckless audits and issued false audit opinions regarding Bally's financial statements. The lawsuit also claims that the false financial statements resulted in artificial inflation in the value of Bally's common stock price. Plaintiff alleges that shareholders who purchased Bally stock at inflated prices during the Class Period and held the stock until the end of the Class Period, April 28, 2004, were damaged. Defendants deny that they did anything wrong. As noted in Question 4 of the Settlement Notice, the Court dismissed the case for a lack of evidence that Defendants acted with intent to defraud. Plaintiff believed this decision was legally incorrect and appealed the dismissal. The parties reached a settlement while the appeal was pending.

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