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D&O litigation digest: ProPetro faces IPO suit; SinoPac takes on Morgan Stanley

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D&O litigation digest: ProPetro faces IPO suit; SinoPac takes on Morgan Stanley

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.

Air freight and logistics

FedEx Corp. and some of its present and former directors and officers are facing two verified stockholder derivative complaints alleging breaches of fiduciary duties, unjust enrichment and violations of the Securities Exchange Act.

The defendants allegedly made materially false and misleading statements regarding the NotPetya cyberattack that crippled the operations of TNT Express NV, the Netherlands-based logistics company it acquired in July 2016. This led to the artificial inflation of its common stock price, followed by a significant decline when the truth about the TNT's deteriorating business was disclosed.

Application software

A complaint was filed against ArcSoft Corp. Ltd., CEO Michael Deng and certain of its board members over Deng's alleged coercion of the company's shareholders to sell all of their stock to him and his "hand-picked" financial partners at a tiny fraction of the actual value.

Deng's buyout scheme allegedly involved making false and misleading statements about the company's weak and deteriorating prospects while concealing material information about its planned IPO. Following the buyout, Deng and his financial partners took the company public at a value over 30x greater than the buyout price. Deng's primary financial partner in the buyout, Huatai United Securities Co. Ltd., was also the lead book-running manager in the planned IPO.

Bank

SinoPac Financial Holdings Co. Ltd. and its banking unit Bank SinoPac Co. Ltd. filed lawsuits against Michael Chang, former president of the bank, and Morgan Stanley in connection with the sale of the bank's U.S. unit to Cathay General Bancorp.

The Taiwanese companies filed a criminal suit against Chang, accusing him of breach of trust over the sale of the U.S. unit. Chang deliberately concealed the actual value of Far East National Bank, which resulted in the underestimation of the asset, SinoPac said in a filing.

Separately, SinoPac filed a civil suit against Morgan Stanley alleging that the company did not fulfill its advisory duties and exercise due care when it acted as its financial adviser for the sale of Far East National Bank.

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Woori Financial Group Inc. and KEB Hana Bank face a potential lawsuit for their alleged misselling of high-risk derivative products, The Korea Times reported. A group of up to five investors claim that sales representatives from both banks failed to clarify the investment risks of derivative-linked funds.

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Cadence Bancorp. is facing a putative class-action lawsuit over alleged misleading statements in the year preceding its second-quarter results on July 22.

The lawsuit contends that the defendants failed to disclose to investors that the company lacked adequate internal controls to assess credit risk and that, as a result, their positive statements about the company's business, operations and prospects were materially misleading.

Cadence Chairman and CEO Paul Murphy and CFO Valerie Toalson were also named as defendants.

Biotechnology

CareDx Inc. filed a patent infringement suit against Eurofins Viracor Inc. in the U.S. District Court for Delaware over technology used for organ transplants.

CareDx is asserting U.S. Patent No. 8,703,652 — exclusively licensed to the company from Stanford University — which covers noninvasive monitoring of organ transplant rejection through cell-free DNA analysis.

Financial technology

The SEC charged ICOBox and its founder Nikolay Evdokimov for allegedly conducting an illegal $14 million offering of digital tokens and for acting as unregistered brokers for other digital asset offerings.

Industrial gases

A verified shareholder derivative complaint was filed against certain directors and officers of Taronis Technologies Inc. alleging breaches of fiduciary duties, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement.

The defendants allegedly conducted a scheme to artificially raise the company's stock price by making certain false and misleading statements regarding a completely fabricated sale of its MagneGas2 cutting fuel to the city of San Diego.

The company, which was formerly known as MagneGas Applied Technology Solutions Inc., also rebranded itself as Taronis Technologies in January as an alleged last-ditch attempt to rehabilitate its rapidly deteriorating image.

Investment banks, brokers and capital markets

Swift Logix Advisors LLC is suing Broadridge Corporate Issuer Solutions Inc. for damages and injunctive relief.

Swift Logix acquired restricted Generex Biotechnology Corp. shares from two shareholders who had accounts at Broadridge. Broadridge allegedly conspired with Generex to convert the shares and prevent Swift Logix from obtaining its shares.

The complaint alleges that Broadridge agreed the shares were freely tradable on a record phone call, but it later reversed its position through a written confirmation and claimed that the shares were being withheld. The action prevented Swift Logix from trading the shares and resulted in accrued damages as Generex share prices decline.

Internet software and services

The U.S. Federal Trade Commission filed a lawsuit against online dating service Match Group Inc. over claims that it used fake love interest advertisements to lure hundreds of thousands of consumers into buying paid subscriptions on Match.com.

Oil and gas equipment and services

A class-action complaint was filed against ProPetro Holding Corp., some of its officers and certain underwriters over a false and misleading registration statement related to its IPO in March 2017.

The company allegedly omitted materially adverse facts about its business, operations and prospects in the statement. The defendants failed to disclose to investors that its executive officers were improperly reimbursed for certain expenses and that the company had engaged in certain undisclosed transactions with related parties, according to the complaint. The company also allegedly lacked adequate disclosure controls and procedures and effective internal control over financial reporting, resulting in a precipitous decline in the market value of its securities.

Pharmaceuticals

A verified shareholder derivative complaint was filed against Mallinckrodt PLC and some of its current and former officers and directors alleging violations of the Securities Exchange Act, breach of fiduciary duties, unjust enrichment, abuse of control and gross mismanagement.

The defendants allegedly issued a series of false and misleading material statements related to its key drug, H.P. Acthar Gel, which artificially inflated the price of Mallinckrodt's common stock. The drug's competitive advantage in the U.S. market was derived from the company's unlawful conduct that prevented alternative synthetic adrenocorticotropic hormone treatments from being developed and marketed in the U.S., according to the complaint.

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Bausch Health Companies Inc. sued Novartis AG unit Sandoz Inc. for allegedly violating the patents covering its gastrointestinal drug Xifaxan.

Semiconductors

A verified stockholder derivative complaint was filed against NVIDIA Corp. and certain officers and members of its board alleging breach of fiduciary duty, insider selling and misappropriation of information, waste of corporate assets and violations of the Securities Exchange Act.

The defendants allegedly made false and misleading statements that the company's financial results would not be affected by volatility in the cryptocurrency market due to strong computer gaming customer demand, which caused its stock price to soar to record highs. The officers and board members also collected millions of dollars in illicit proceeds by selling large quantities of their own NVIDIA shares at artificially inflated prices.

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A verified stockholder derivative complaint was filed against Micron Technology Inc. and certain officers and directors alleging breaches of fiduciary duty, insider selling and misappropriation of information, waste of corporate assets and violations of the Securities Exchange Act.

The company allegedly colluded with its main competitors Samsung Electronics Co. Ltd. and SK Hynix Inc. to artificially increase prices of their dynamic random-access memory semiconductor devices.

Specialty chemicals

A verified derivative and class action complaint was filed against OMNOVA Solutions Inc. and certain members of its board of directors over breaches of fiduciary duties and other violations of state law arising from the board's agreement to sell the company to Synthomer PLC.

Synthomer will purchase all of the company's outstanding common shares as part of the merger agreement, valued at approximately $824 million. The proposed transaction is allegedly designed to ensure the sale of the company to Synthomer, with terms preferential to the defendants and other insiders at the expense of the company's shareholders.

Steel

The National Labor Relations Board filed a complaint against Cobalt Coal Ltd. to void certain liens imposed against the company by a former director.

Technology hardware, storage and peripherals

Singapore-based venture capital firm Bigfoot Ventures Ltd. filed a complaint against NextEngine Inc., founder and CEO Mark Knighton and ShapeTools LLC alleging a severe dereliction of fiduciary duties, abuse of control, corporate waste and unjust enrichment.

Knighton allegedly conducted an improper transfer of all of NextEngine's inventory and revenue to ShapeTools, which caused NextEngine to become barren and insolvent. Knighton testified under oath during a judgment debtor examination that ShapeTools was incorporated to conceal revenue from investor Bigfoot Ventures and thwarting the venture capital firm from collecting money owed to it by NextEngine, according to the complaint.

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A verified shareholder derivative complaint was filed against Apple Inc. and certain officers and directors alleging breaches of fiduciary duties that have caused and will continue to cause substantial financial harm and reputational damage to the company.

The complaint alleges that the defendants knowingly made materially false and misleading statements regarding the negative impact of the U.S.-China trade war on demand for iPhones and its pricing power in greater China, as well as the negative impact on iPhone sales growth by the company's decision to slash battery prices for older models. The developments negatively affected the company's financial results, causing its common stock to plunge when the resulting revenue shortfall was disclosed.