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D&O litigation digest: Alphabet sued over data breach; Celgene deal spurs suit

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.

Banks and credit unions

The Electrical Workers Pension Fund Local sued Bank of America Corp. and its subsidiaries, as well as Royal Bank of Scotland Group PLC and its subsidiaries, over alleged manipulation of eurozone government bonds being sold and purchased throughout the U.S. The lawsuit claims that the two banks were among the eight banks that allegedly widened the bid-ask spreads by increasing the prices investors paid for the eurozone government bonds or by decreasing the prices at which investors sold the bonds.

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A class-action suit accused Colorado Springs, Colo.-based Ent CU of charging overdraft fees on accounts that did not overdraw, The Gazette reported. Ashley Brymer, a credit union member in El Paso County, and Stephanie Nelson, a member in Tarrant County, alleged they were charged $25 in overdraft fees on transactions even when they had a positive account balance.

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Towson, Md.-based Hamilton Bancorp Inc. is facing two lawsuits over its planned merger with Shippensburg, Pa.-based Orrstown Financial Services Inc. One of the suit seeks preliminary and permanent injunctions on the deal unless sufficient disclosures are provided, while the other alleges that Hamilton Bancorp's directors breached their fiduciary duties by omitting certain material information regarding the merger in the prospectus. Hamilton Bancorp dismissed the claims and said it provided supplemental disclosures to avoid litigation-related expenses.


Biotechnology

A class-action lawsuit was filed by a purported shareholder of Celgene Corp. against the company and certain board members in connection with the company's pending acquisition by Bristol-Myers Squibb Co. The lawsuit claims that the deal-related registration statement omitted or misrepresented material information concerning post-deal employment and directorship of the company's officers and directors, as well as Celgene's and Bristol-Myers' financial projections provided by Celgene's management and relied upon by its financial advisers, JPMorgan Securities LLC and Citigroup Global Markets Inc., for their analyses, among other things. The lawsuit claims that such information is necessary for shareholders to assess the fairness of the proposed deal.

Food and beverage

Plaintiff MMM Delicious Co. filed a complaint against Mast Brothers Inc. and its founders, officers, directors and co-presidents, Michael Mast and Richard Mast. The complaint alleges that Michael Mast and Richard Mast breached the corporate governance documents, misled fellow board members and shareholders, withheld critical information and engaged in sham transactions. In December 2015, the company suffered from the "Chocolate-Gate" scandal in which it was accused of engaging in consumer fraud by adding ingredients to melted French chocolate products and misleadingly packaging it as an artisanal "bean to bar" product. In February 2016, the company launched a series A investment round of $4.5 million, with True Ventures purchasing 6,800 series A preferred shares for $3.4 million, and acquiring a 23.7% ownership interest in the company. At that time, Michael Mast and Richard Mast each sold 700 of their respective 6,075 common shares back to the company, reducing their ownership interest to 18.7% each and withdrawing $700,000 in cash from the company account. Subsequently, in April 2017, they purchased the 6,800 series A preferred shares back from True Ventures for $1. The sham purchase resulted in them gaining majority control of the company with a combined ownership interest of 61.2%.

Home improvement retail

A stockholder derivative complaint against Grow Solutions Holdings Inc. alleges that the company's board approved the payment of undisclosed commissions and pay-offs to the defendants, which include the company's board members, or their shills or straw men in conjunction with at least two private placements. In addition, the board amended the company's articles of incorporation to issue a new class of securities, the series A preferred stock, and grant it voting rights of substantial weight compared to the voting rights of common shares as held by shareholders. These preferred shares were issued by the board members to themselves, through a newly minted entity called Defendant Grow Solutions Holdings LLC, controlled equally by each board member, according to the complaint.

Internet software and services

A verified stockholder derivative complaint accuses Alphabet Inc. of routinely misleading users about their data privacy and failing to protect user data. In August 2018, the Associated Press reported that the company misled users about its data collection practices, specifically, regarding the location tracking features on mobile devices and applications. In October 2018, the Wall Street Journal revealed that the board of Alphabet had concealed a "software glitch" existing since 2015 that had exposed the personal data of about 500,000 Google+ users to unauthorized third-party access. While the glitch was discovered in March 2018, the company's board decided not to alert the users in an attempt to avoid regulatory scrutiny. When news of the Google+ breach reached the market, Alphabet's class A stock plunged more than 9.4%, or $110.71 per share, to close at $1,057.12 per share on Oct. 24, 2018, according to the suit.

Oil and gas exploration and production

Alta Mesa Resources Inc. f/k/a Silver Run Acquisition Corp is facing a class-action lawsuit in connection with its merger agreement with Alta Mesa Holdings LP and Kingfisher Midstream LLC. The lawsuit contends that Silver Run issued a materially false and misleading deal-related proxy statement, which, among other things, overstated the value of the assets to be acquired via the deal and claimed that both Alta Mesa Holdings and Kingfisher Midstream were poised for substantial near-term growth, while failing to disclose operational setbacks, customer uncertainty and predictable well shutdowns as a result of planned projects started in late 2017.

Trucking

A class-action lawsuit was filed against U.S. Xpress Enterprises Inc, certain of its current and/or former officers and directors, and underwriters of its initial public offering completed in June 2018. The complaint alleges that the company's registration statement and prospectus in connection with the IPO failed to disclose, among other things, that a shortage of trucks was negatively impacting the company's dedicated division and that certain account shipping patterns had been performing differently than expected, negatively affecting utilization and driver retention. In November 2018, during a conference call to discuss quarterly earnings, U.S. Xpress disclosed the impact of unusual shipping patterns on its segments and also explained how market challenges for drivers resulted in a year-to-year tractor count decrease. Following this disclosure, the company's stock price dropped 29.98% to a close of $7.10 per share on Nov. 2, 2018, from a close of $10.14 per share on Nov. 1, 2018. The underwriters of U.S. Xpress' IPO, also named defendants in the suit, are Merrill Lynch Pierce Fenner & Smith Inc., Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, Wells Fargo Securities LLC, Stephens Inc., Stifel Nicolaus & Co. Inc. and WR Securities LLC.