COMMITMENTS AND CONTINGENCIES |
9 Months Ended |
|---|---|
Sep. 30, 2017 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Securities Class Action
In January 2016, two putative securities class action complaints were filed against the Company and its top executives in the United States District Court for the Central District of California. On March 29, 2016, the Court consolidated these actions under the caption Ford v. Natural Health Trends Corp., Case No. 2:16-cv-00255-TJH-AFMx, appointed two Lead Plaintiffs, Mahn Dao and Juan Wang, and appointed the Rosen Law Firm and Levi & Korsinsky LLP as co-Lead Counsel for the purported class. Plaintiffs filed a consolidated complaint on April 29, 2016. The consolidated complaint purports to assert claims on behalf of all persons who purchased or otherwise acquired our common stock between March 6, 2015 and March 15, 2016 under (i) Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against the Company and Chris T. Sharng, Timothy S. Davidson and George K. Broady (together, the “Individual Defendants”), and (ii) Section 20(a) of the Securities Exchange Act of 1934 against the Individual Defendants. The consolidated complaint alleges, inter alia, that the Company made materially false and misleading statements regarding the legality of its business operations in China, including running an allegedly illegal multilevel marketing business. The consolidated complaint seeks an indeterminate amount of damages, plus interest and costs. The Company moved to dismiss the consolidated complaint on June 15, 2016. After full briefing and a hearing, the Court denied defendants’ motion to dismiss on December 5, 2016. On February 17, 2017, the Company filed an answer to the consolidated complaint. On April 14, 2017, the Court entered an order setting case management deadlines for the case, which included the conclusion of fact discovery in May 2018 and a final pretrial conference in August 2018. On July 10, 2017, the Court entered a stipulation between the parties, postponing all deadlines and staying the case for thirty days to allow the parties to engage in settlement discussions. On July 17, 2017, the parties reached an agreement in principle to settle the action. On July 18, 2017, the parties jointly filed a stipulation and proposed order with the Court, seeking to extend the stay for approximately sixty days to allow them an opportunity to negotiate the terms of a written settlement agreement and prepare and file the documentation necessary to obtain Court approval of the settlement. The Court entered the requested order on July 25, 2017, effecting a further stay of the case until September 25, 2017. The proposed class-wide settlement in the amount of $1.75 million was submitted to the Court for preliminary approval on October 3, 2017, but no hearing date has yet been set. If approved, the proposed settlement will be fully funded by the Company’s insurers. Defendants continue to believe that these claims are without merit and intend to vigorously defend against them if a settlement is not finalized and approved by the Court.
Shareholder Derivative Claims
In February 2016, a purported shareholder derivative complaint was filed in the Superior Court of the State of California, County of Los Angeles: Zhou v. Sharng. In March 2016, a purported shareholder derivative complaint was filed in the United States District Court for the Central District of California: Kleinfeldt v. Sharng (collectively the “Derivative Complaints”). The Derivative Complaints purport to assert claims for breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and corporate waste against certain of the Company’s officers and directors. The Derivative Complaints also purport to assert fiduciary duty claims based on alleged insider selling and conspiring to enter into several stock repurchase agreements, which allegedly harmed the Company and its assets. The Derivative Complaints allege, inter alia, that the Company made materially false and misleading statements regarding the legality of its business operations in China, including running an allegedly illegal multi-level marketing business, and that certain officers and directors sold common stock on the basis of this allegedly material, adverse non-public information. The Derivative Complaints seek an indeterminate amount of damages, plus interest and costs, as well as various equitable remedies. On February 1, 2017, pursuant to a stipulation among the parties, the Los Angeles Superior Court entered a stay of the Zhou action pending conclusion of the related federal class action in the United States District Court for the Central District of California: Ford v. Natural Health Trends Corp. A nearly identical stipulated stay was entered in the Kleinfeldt case on February 28, 2017. The Company believes that these claims are without merit and intends to vigorously defend against them.
|