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D&O litigation digest: 3 companies face product-related suits

The number of securities-related lawsuits filed in the U.S. has been rising rapidly in recent years, particularly after M&A transactions and other significant corporate developments are announced.

S&P Global Market Intelligence is now keeping track of such cases filed against companies in our covered industries. The following information is compiled on a best-efforts basis twice monthly.

Aerospace and defense

Spirit AeroSystems Holdings Inc. and certain of its executives are facing a class action lawsuit related to their alleged failure to disclose the company's lack of effective internal controls over financial reporting and its noncompliance with its established accounting principles related to potential contingent liabilities.

Application software

Telaria Inc. and its board of directors are facing an individual lawsuit and a class action lawsuit alleging violations of the Securities Exchange Act related to its proposed acquisition by The Rubicon Project Inc. and Madison Merger Corp.

The defendants allegedly failed to disclose material information about the financial analyses performed by Telaria's financial adviser, the presence of certain provisions on the nondisclosure agreements entered by the company and the financial projections of Telaria, Rubicon Project and the combined company.

Auto parts and equipment

SORL Auto Parts Inc. and its board of directors are facing an individual lawsuit and a class action lawsuit alleging violations of the Securities Exchange Act related to its proposed merger with Ruili International Inc. and Ruili International Merger Sub Inc.

The defendants allegedly failed to disclose material information about SORL Auto Parts' financial projections, the valuation analyses performed by its financial adviser and the process that led to the proposed transaction.

Biotechnology

Geron Corp. and its CEO John Scarlett are facing a class action lawsuit related to its imetelstat drug for the treatment of certain cancers that occur in the bone marrow, which was developed in partnership with Johnson & Johnson's Janssen Biotech Inc. division.

The defendants allegedly failed to disclose material information about its IMbark clinical drug study for imetelstat, which failed and resulted in the termination of Geron's partnership with Janssen Biotech.

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MiMedx Group Inc. and certain of its executives and directors are facing a verified shareholder derivative complaint related to an alleged channel-stuffing scheme that fraudulently recognized revenue in connection with the company's distribution agreement with AvKARE Inc. in its certified financial statements. This led to the Department of Justice investigating the company's distribution practices and channel-stuffing allegations.

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Portola Pharmaceuticals Inc. and certain of its executives are facing a class action lawsuit related to its Andexxa drug, marketed as Ondexxya in Europe, for the reversal of anticoagulation due to life-threatening or uncontrolled bleeding in patients treated with anticoagulants.

The defendants allegedly failed to disclose the significant risk of returns and expenses that the company faced due to Andexxa's six-month shelf life and the shift to longer-dated Andexxa drugs, which the company allowed customers to exchange the short-dated drugs for at no cost.

Brewer: Beer and malt liquor

Craft Brew Alliance Inc. and its board of directors are facing two individual lawsuits and a class action lawsuit alleging violations of the federal securities laws related to its proposed acquisition by Anheuser-Busch Cos. LLC through Barrel Subsidiary Inc.

The defendants allegedly failed to disclose material information about Craft Brew Alliance's financial projections, the financial valuation analyses provided by its financial adviser, the background of the proposed transaction and potential conflicts of interest involving company insiders.

Broadcasting

E.W. Scripps Co. and GAMCO Asset Management Inc. are facing an individual lawsuit related to GAMCO's alleged refusal to account for or disgorge short-swing profits made through transactions involving E.W. Scripps' securities, which GAMCO allegedly executed on behalf of the funds it manages.

Casinos and gaming

500.com Ltd. and certain of its executives are facing a class action lawsuit related to their alleged failure to disclose that the company's executives and consultants bribed Japanese officials to gain their favor, as part of the company's bid to run an upcoming Japanese casino resort.

Diversified chemicals

Sasol Ltd. and certain of its former and current executives are facing a class action lawsuit related to an $8.1 billion Lake Charles, La.-based ethane cracker and derivatives complex, which was dubbed the Lake Charles Chemicals Project.

The defendants allegedly failed to disclose that the company failed to conduct sufficient due diligence and account for multiple issues with the project, including its true cost, before its investment. The Lake Charles Chemicals Project's construction and operations were allegedly plagued by control weaknesses, delays, rising costs and technical issues, which were exacerbated by Sasol executives' improper and unethical behavior related to financial reporting and oversight for the project.

Healthcare equipment

Wright Medical Group NV and its board of directors are facing a lawsuit alleging violations of the federal securities laws related to its proposed acquisition by Stryker Corp. and Stryker B.V.

The defendants allegedly failed to disclose material information about Wright Medical Group's financial projections, the financial analyses performed by its financial adviser and potential conflicts of interest involving another financial adviser.

Household appliances producers

IRobot Corp. and certain of its executives and directors are facing a verified shareholder derivative complaint related to a channel-stuffing scheme that allegedly artificially inflated its revenue and sales figures. The scheme was allegedly concealed by acquiring Sales On Demand Corp.'s iRobot-related distribution business and France-based Robopolis SAS.

Housewares and specialties producers

CSS Industries Inc. and its board of directors are facing two individual lawsuits and one class action lawsuit alleging violations of the Securities Exchange Act related to its proposed acquisition by the affiliates of IG Design Group PLC through IG Design Group Americas Inc. and Tom Merger Sub Inc.

The defendants allegedly failed to disclose material information about CSS Industries' financial projections, the financial valuation analyses performed by its financial adviser, the process that led to the proposed transaction and the presence of certain provisions on the nondisclosure agreements entered by the company.

Integrated telecommunication services

Cincinnati Bell Inc. and its board of directors are facing a lawsuit alleging violations of the Securities Exchange Act related to its proposed acquisition by the affiliates of Brookfield Infrastructure Partners LP.

The defendants allegedly failed to disclose material information about Cincinnati Bell's financial projections and the financial analyses performed by its financial adviser.

Internet software and services

Instructure Inc. and its board of directors are facing an individual lawsuit alleging violations of the federal securities laws related to its proposed acquisition by Thoma Bravo LLC, PIV Purchaser LLC and PIV Merger Sub Inc.

The defendants allegedly failed to disclose material information about Instructure's financial projections, the valuation analyses performed by its financial adviser, the background of the proposed transaction and potential conflicts of interest involving company insiders.

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Verizon Connect and its CEO, Andres Irlando, are facing an individual lawsuit related to their alleged refusal to compensate the plaintiff in connection with the sale of Remote Dynamics Inc.'s stock positions and REDIview to Verizon Connect, which was valued at $1 billion.

The lawsuit alleged that the defendants, which also include Telogis Inc. CEO David Cozzens and Remote Dynamics CEO Gary Hallgren, are required to disgorge all personal gains arising from the sale.

Investment banks, brokers and capital markets

TD Ameritrade Holding Corp., Depository Trust & Clearing Corp. and CEDE & Co. are facing a lawsuit related to TD Ameritrade's alleged fraudulent refusal to issue a stock certificate to the plaintiff, who purchased 377,000 shares of Bancorp International Group Inc. through TD Ameritrade's online trading platform, under the guise that the purchased shares were affected by a global lock imposed by the Depository Trust that prevented it from issuing a certificate.

The lawsuit alleged that the defendants sold counterfeit Bancorp International shares and that TD Ameritrade's refusal to issue a stock certificate to the plaintiff was because it did not trade in authorized registered securities.

Leisure facilities

Six Flags Entertainment Corp. and certain of its executives are facing a class action lawsuit related to its exclusive partnership with Riverside Investment Group Co. Ltd. for the development of 11 Six Flags-branded theme parks in China, which did not progress as expected due to "severe challenges" resulting from the macroeconomic environment and declining real estate market in China.

The defendants allegedly failed to disclose the extent of the financial distress faced by Riverside Investment and the high likelihood that it would default on its payment obligations to Six Flags.

Machinery: Industrial

Gardner Denver Holdings Inc. and its board of directors are facing a class action lawsuit alleging violations of the Securities Exchange Act related to its merger agreement with Ingersoll-Rand PLC, Ingersoll-Rand U.S. HoldCo Inc. and Charm Merger Sub Inc., under which Gardner Denver will be combined with Ingersoll-Rand's industrial segment.

The defendants allegedly failed to disclose material information about Gardner Denver's financial projections, the analyses performed by its financial adviser and potential conflicts of interest involving the company's financial advisers and company insiders.

Oil and gas equipment and services

ProPetro Holding Corp. and certain of its executives and directors are facing a verified shareholder derivative complaint related to the company's disclosure in August 2019 that it would delay its quarterly report and earnings call due to an internal review on expense reimbursements, which allegedly included $370,000 of improper reimbursements to senior management.

The review was part of ProPetro's entry into revised agreements related to its purchase of AFGlobal Corp.'s hydraulic fracturing fleet products. The internal review also uncovered material weaknesses in the company's financial controls and found an undisclosed related-party transaction involving the company's former chief accounting officer, Ian Denholm.

Oil and gas storage and transportation

Tallgrass Energy LP and its board of directors are facing three individual lawsuits and two class action lawsuits alleging violations of the Securities Exchange Act related to its proposed acquisition by the affiliates of The Blackstone Group Inc., Enagás SA, GIC Pte. Ltd., National Pension Service and Universities Superannuation Scheme Ltd. through Prairie Private Acquiror LP and Prairie Merger Sub LLC.

The defendants failed to disclose material information about Tallgrass Energy's financial projections, the financial analyses conducted by its financial adviser, the background of the proposed transaction and potential conflicts of interest involving the defendants.

Packaged foods and meats producers

Beyond Meat Inc. and certain of its executives are facing a class action lawsuit over their alleged failure to disclose that the company's termination of its exclusive supply agreement with Don Lee Farms constituted a breach of the agreement and that it presented a doctored food safety consultant's report to Don Lee Farms.

Pharmaceuticals

Dermira Inc. and its board of directors are facing an individual lawsuit alleging violations of the Securities Exchange Act related to its proposed acquisition by Eli Lilly and Co. and Bald Eagle Acquisition Corp.

The defendants allegedly failed to disclose material information about Dermira's financial projections, the financial analyses conducted by its financial advisers, potential conflicts of interest involving the financial advisers and the confidentiality agreements it entered in connection with the proposed transaction.

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Nektar Therapeutics and certain of its current and former executives and directors are facing a verified stockholder derivative complaint related to its NKTR-214 drug, or bempegaldesleukin, which stimulates the proliferation and growth of tumor-killing immune cells.

The defendants allegedly failed to disclose Nektar Therapeutics' noncompliance with current good manufacturing practices and its decision with Bristol-Myers Squibb Co. to reduce the number of indications that they sought approval for amid concerns related to preliminary analyses, market commercialization and the ability to get approval for the drug from the Food and Drug Administration.

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Trulieve Cannabis Corp. and certain of its executives are facing a class action lawsuit related to the defendants' alleged failure to disclose the company's "excessive and unreasonable" markup on its biological assets, its inflated reported gross profit and an undisclosed related party real estate transaction involving the husband of Trulieve Cannabis CEO Kim Rivers.

Real estate

Prodigy Network LLC and 1234 W Randolph NewCo Inc. are facing an individual lawsuit related to a $55 million equity offering led by Prodigy Network for the acquisition and development of a Chicago-based former dairy supply industrial facility, which would ultimately be converted into a hotel operated by Standard Hotel.

The capital contributions initially raised for the project amounting to approximately $13.8 million decreased to $8.2 million due to alleged mismanagement and other "questionable" business practices, which resulted in the development project being unable to meet its financial obligations, including the payment of pending investor redemption requests.

Renewable electricity

Pattern Energy Group Inc. and its board of directors are facing an individual lawsuit alleging violations of the Securities Exchange Act related to its proposed merger with Canada Pension Plan Investment Board, Pacific U.S. Inc. and Pacific BidCo U.S. Inc.

The defendants allegedly failed to disclose material information about Pattern Energy's financial projections, the valuation analyses performed by its financial adviser, the background of the proposed transaction and potential conflicts of interest involving company insiders, the company's financial adviser and the financial adviser of the special committee of its board.

Restaurants

Habit Restaurants Inc. and its board of directors are facing three individual lawsuits and two class action lawsuits alleging violations of the Securities Exchange Act related to its proposed acquisition by YUM! Brands Inc. and YEB Newco Inc.

The defendants allegedly failed to disclose material information about Habit Restaurants' financial projections, the background of the proposed transaction, the valuation analyses performed by its financial advisers, confidentiality agreements with potential buyers and potential conflicts of interest involving company insiders and the financial advisers.

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Luckin Coffee Inc. and certain of its executives are facing a class action lawsuit related to the defendants' alleged failure to disclose the company's inflated financial performance metrics and its overstated financial health due to its unreliable financial results.

Soft drinks

Primo Water Corp. and its board of directors are facing two class action lawsuits alleging violations of the Securities Exchange Act related to its proposed merger with Cott Corp., Cott Holdings Inc., Fore Merger LLC and Fore Acquisition Corp.

The defendants allegedly failed to disclose material information about the financial analyses performed by Primo Water's financial adviser, the financial projections of Primo Water and Cott and the "flawed" sales process leading to the proposed transaction.

Steel

AK Steel Holding Corp. and its board of directors are facing two individual lawsuits alleging violations of the federal securities laws related to its proposed merger with Cleveland-Cliffs Inc. and Pepper Merger Sub Inc.

The defendants allegedly failed to disclose material information about the companies' financial projections, the financial valuation analyses performed by AK Steel's financial adviser and potential conflicts of interest involving the financial adviser.

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Cleveland-Cliffs Inc. and its board of directors are facing an individual lawsuit alleging violations of federal securities laws related to its merger agreement with AK Steel Holding Corp.

The defendants allegedly failed to disclose material information about Cleveland-Cliffs' financial projections and potential conflicts of interest involving its financial advisers.

Technology distributors

Anixter International Inc. and its board of directors are facing a lawsuit alleging violations of the Securities Exchange Act related to its proposed merger with WESCO International Inc. through Warrior Merger Sub Inc.

The defendants allegedly failed to disclose material information about Anixter International's financial forecasts and the financial analyses conducted by its financial advisers.

Tobacco producers

Altria Group Inc. and certain of its executives are facing a class action lawsuit related to the company's $12.8 billion investment in JUUL Labs Inc. in December 2018, which represented a 35% stake in the e-cigarette maker.

The defendants allegedly failed to disclose that Altria Group failed to conduct sufficient due diligence and failed to account for material risks associated with Juul's products and marketing practices before its investment, which was likely to harm the company's reputation and operations due to mounting public scrutiny, negative publicity and governmental pressure on Juul and e-vapor products.

Trading companies and distributors

Aircastle Ltd. and its board of directors are facing an individual lawsuit alleging violations of the federal securities laws related to its proposed merger with MM Air Ltd. and MM Air Merger Sub Ltd., which are affiliates of Marubeni Corp. and Mizuho Leasing Co. Ltd.

The defendants allegedly failed to disclose material information about Aircastle's financial projections, the fairness opinion of its financial adviser, the background of the proposed transaction and potential conflicts of interest involving company insiders.

Water utilities

AquaVenture Holdings Ltd. and certain of its executives and directors are facing an individual lawsuit alleging violations of the Securities Exchange Act related to its proposed merger with Culligan International Co. through Amberjack Merger Sub Ltd.

The defendants allegedly failed to disclose material information about the financial analyses performed by AquaVenture's financial advisers.