SurfStitch in legal fight Cover-up claim as $100 million class action filed
THE news goes from bad to worse for beleaguered Gold Coast online retailer SurfStitch.
Yesterday Sydney law firm Quinn Emanuel Urquhart & Sullivan filed a $100 million class action on behalf of shareholders alleging it failed to disclose the true state of its finances.
The Bulletin reported earlier this month on the then pending action, which is believed to be the state’s first shareholder class action under the Supreme Court of Queensland’s new class action rules.
Rival law firm Gadens has a $500 million class action it plans to lodge against the company, alleging it failed to keep the market informed about its true financial situation.
The Quinn Emanuel class action accuses SurfStitch of breaching its disclosure obligations by not revealing it was trading at a loss in August 2015.
The firm said SurfStitch instead covered up its loss with a series of transactions to boost revenue in December 2015.
It said SurfStitch should never have made or repeated its earnings forecast for the year to June 2016 of $15 million to $18 million. The result was an $18.8 million loss.
The company’s shares plummeted 85 per cent following a series of profit downgrades, wiping $500 million from its market value, the firm said.
Between November 2015 and June 2016, SurfStitch shares went from $2.13 to 32¢.
“Companies need to know that the free market depends on them being upfront with investors,” Quinn Emanuel partner Damian Scattini said in a statement.
“Class actions like this send a powerful message to company boards that if you mislead investors, you will be held to account.”
Backed by litigation funder Vannin Capital, the class action is open to anyone who purchased or held shares between August 27 in 2015 and June 8 last year.
The company’s then executive leadership team all left amid the turmoil, including cofounder Justin Cameron, who stepped down as chief executive in March last year.
He was replaced by cofounder Lex Pederson and Surfdome founder Justin Stone as joint chief executives, however they only lasted three months in the job before being replaced by the then chief operating officer Mike Sonand.
It is turning into a horror week for the retailer.
On Monday, SurfStitch shares hit a then lowest price of 6.9¢ after the company again downgraded its earnings outlook and announced it would close its US office.
The company had forecast a FY17 pre-tax loss of $5 million to $6.5 million but said a difficult retail climate had resulted in its forecast loss blowing out to between $10.5 million and $11.5 million.
Shares in the group closed down 9.3 per cent at 6.8¢.