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
A purported class-action lawsuit accuses XPO Logistics Inc. of materially misstating its financial condition and operating results to the investing public. The lawsuit accuses the company of "cooking its books" through fraudulent accounting schemes and other improper accounting practices. Specifically, the company accounted for its many acquisitions, questionable tax accounting, underreporting bad debts and phantom income through unaccountable acquisition earnout liabilities and aggressive amortization assumptions in order to portray glowing non-GAAP results while representing that its financial statements were GAAP-compliant.
On Dec. 13, Spruce Point Capital Management released a report characterizing XPO Logistics' financials as ''unreliable and dubious,'' following which the company's stock plummeted 26% to close at $44.50 per share on the same day.
China-based Link Motion Inc. is facing a verified stockholder derivative complaint which accuses certain individuals of breaches of fiduciary duties, gross mismanagement and corporate waste. The complaint alleges that the individuals failed to take necessary steps to prevent the company's involuntary for-cause delisting from the New York Stock Exchange by failing to file its annual 2017 Form 20-F as a foreign issuer and allowing the company's stock to trade at a price of less than $1.00 per share over a consecutive 30-day trading period as of at least Sept. 24.
Additionally, the individuals directed and/or allowed the company to abandon certain of its business lines by ceasing communication and the provision of support and capital. The action resulted in improper employee layoff and the closure of the company's subsidiary in Finland on about Nov. 23.
The complaint also accuses the individuals of stealing certain company assets and wrongfully transferring ownership interests to third parties, such as in the case of FL Mobile and Showself Live Social Video Business, SyberOS and Link Motion Rideshare.
Banks and financial services
A class-action lawsuit was filed by a purported shareholder of Reston, Va.-based Access National Corp. against the company and its board in connection with the company's acquisition by Richmond, Va.-based Union Bankshares Corp. The lawsuit claims that a deal-related registration statement omitted material information concerning the analyses performed by the company's financial adviser, Sandler O'Neill & Partners LP, rendering the registration statement false and misleading.
A group of 12 Michigan investors who lost more than $7 million are planning to sue INTL FCStone Inc. for the losses they suffered due to hedge fund OptionSellers.com. OptionSellers.com suffered a "catastrophic loss" due to volatility in the oil and natural gas markets. The suing investors claimed that Intl FCStone, OptionSellers.com's clearing firm, was oblivious when OptionSellers.com invested tens of millions of dollars in the natural gas market, betting that prices would not rise. Instead, prices rose and the investors lost their money. Intl FCStone allegedly told one Michigan family to pay an additional $250,000 because the losses were so severe they exceeded the assets in their accounts. The investors also alleged that the hedge fund abandoned its risk prevention and hedging strategies, which subjected clients to unlimited downside risk.
A verified stockholder derivative complaint against certain board members and the CEO of Sinclair Broadcast Group Inc. accuses them of breaches of fiduciary duties in connection with their conduct during an attempted merger with Tribune Media Co.
According to the complaint, the defendants failed to take appropriate and necessary actions to avoid or eliminate any impediment in obtaining regulatory approval for the merger. As per the rules of the Federal Communications Commission, the company was required to ensure that, following the merger, it would not have an attributable interest in television stations exceeding 39% of the national audience and that it would not own more than two stations in the same designated market area.
The company's stations, however, reached approximately 25% of U.S. households prior to the merger. Instead of selling or divesting the assets, the defendants presided over a scheme to deceive its shareholders and the Federal Communications Commission by creating "sham" transactions with buyers intertwined with the company and its controlling shareholders, the Smith brothers, to convince regulators that the merger was in compliance with the Federal Communications Commission's ownership requirements.
On July 16, Federal Communications Commission Chairman Ajit Pai revealed that the company's actions "potentially involve deception" and that station divestitures proposed by the company allowed it to retain control of the stations in practice, if not in name.
Neiman Marcus Group Inc. and its investors, Ares Management Corp. and Canada Pension Plan Investment Board, are facing an over $1 million lawsuit filed by a creditor accusing the group of "looting" company assets.
In a lawsuit filed in the District Court of Dallas County, Texas, Marble Ridge Capital LP alleged that the "fraudulent" transfer of Neiman Marcus Group LTD LLC's assets conducted by Neiman Marcus and its leveraged buyout sponsors defrauded the company's creditors.
The New York-based hedge fund manager claims that the Dallas-based luxury retailer removed its myTheresa brand, valued at $1 billion, and U.S. real estate worth at least $100 million beyond creditor reach, then distributed assets of Munich-based myTheresa to its parent "for no consideration whatsoever."
The assets could have been used to satisfy the claims of the insolvent subsidiary's creditors but were instead placed under the parent's direct control, resulting in delayed creditor recovery, Marble Ridge said in the litigation.
CURO Group Holdings Corp. and its senior executives are facing a class-action lawsuit on allegations they issued false and misleading statements about the company's efforts to transition its Canadian inventory of products from single-pay loans to open-end loans.
The suit alleged that President and CEO Donald Gayhardt, CFO Roger Dean and COO William Baker also misrepresented the "deleterious effect" of the up-front loan loss on the company's financial performance, causing the company's stock price to artificially inflate.
However, the company's share price dropped by $7.69 per share to $15.18 per share after the company disclosed a "substantially revised" full-year 2018 guidance after markets closed Oct. 24.
Hypermarkets and supercenters
A verified stockholder derivative action alleged that certain officers and/or directors of Costco Wholesale Corp. violated their fiduciary duties by causing or allowing the company to disseminate materially false and misleading information to its shareholders. According to the complaint, the individuals failed to disclose that the company lacked effective internal control related to its information technology general controls over certain information technology systems that support its financial reporting processes.
In October, the company filed a Form 10-K with the U.S. Securities and Exchange Commission, revealing the material deficiency in its internal control, following which its share price fell $8.21 per share to close at $218.19 per share on the same day.
Mortgage brokers and services
Ditech Holding Corp. agreed to settle a lawsuit, filed by shareholder Michael Vacek Jr., which accused the company's directors of breaching their fiduciary duties, unjustly enriching themselves and wasting corporate assets involving the company's mortgage products.
Under the proposed settlement, the company will adopt certain corporate governance measures and will pay $257,500, or a smaller amount approved by the court, in attorneys' fees and litigation expenses to Vacek's counsel.
A settlement hearing will be held on Jan. 31, 2019, in the U.S. District Court for the Eastern District of Pennsylvania.