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# Applied Digital Corporation Faces Class Action Lawsuit for Securities Violations
*Keyphrases for SEO: Applied Digital securities lawsuit, federal securities laws violations*
**New York, Aug. 26, 2023** \- Applied Digital Corporation (NASDAQ: APLD) is currently facing a class action lawsuit due to alleged violations of federal securities laws. The lawsuit, filed in the United States District Court for the Northern District of Texas, seeks to recover damages on behalf of all individuals and entities who purchased or acquired Applied Digital securities between April 13, 2022, and July 26, 2023. The plaintiffs are seeking remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
If you purchased Applied Digital securities during the specified class period, you have until October 11, 2023, to request the Court to appoint you as the lead plaintiff for the class action. Additional information and a copy of the complaint can be obtained at www.pomerantzlaw.com.
## The Background of Applied Digital Corporation
Applied Digital Corporation, formerly known as Applied Blockchain, is a company that specializes in designing, developing, and operating datacenters across North America. They also provide artificial intelligence (AI) cloud services, computing datacenter hosting, and crypto datacenter hosting services. In April 2022, the company conducted its initial public offering (IPO) and raised approximately $40 million in proceeds through the issuance of 8 million shares of common stock priced at $5.00 per share.
The IPO was underwritten by B. Riley Securities, Inc., a subsidiary of B. Riley Financial, Inc. Notably, Applied Digital had several close connections with B. Riley, including the Company’s CEO, Wesley Cummins, who had previously sold a majority interest in a registered investment adviser controlled by him to B. Riley Financial. Cummins also served as the CEO and President of B. Riley Capital Management, LLC. In addition, two members of Applied Digital’s Board, Chuck Hastings and Virginia Moore, had significant ties to B. Riley.
## Compliance Issues and Alleged Misconduct
As a publicly traded company on the NASDAQ, Applied Digital was required to have a majority of independent directors on its Board. Despite the close connections between Applied Digital and B. Riley, the IPO Prospectus assured investors that the company had structured its Board composition to meet NASDAQ requirements. However, it is alleged that Applied Digital’s Board did not meet the independence requirements under NASDAQ rules, raising concerns about the company’s corporate governance standards.
In May 2023, Applied Digital announced the launch of its cloud service for AI applications. Shortly after, they entered into a loan and security agreement with B. Riley Commercial Capital, LLC and B. Riley Securities, with the purpose of obtaining additional liquidity to fund the development of their AI cloud platform and datacenters. Interestingly, Applied Digital repaid the loan balance two years ahead of its contractual maturity, coinciding with B. Riley’s efforts to finance the acquisition of Franchise Group, Inc.
## Allegations of False and Misleading Statements
Throughout the class period, the complaint alleges that Applied Digital made false and misleading statements regarding its business, operations, and compliance policies. Specifically, the company is accused of overstating the profitability of its datacenter hosting business and its ability to transition into a low-cost AI cloud services provider. Additionally, Applied Digital is accused of failing to maintain proper corporate governance standards due to the lack of independence on its Board. It is claimed that these actions could subject the company to significant financial and reputational harm.
## Scrutiny and Share Price Decline
In July 2023, market analysts began scrutinizing Applied Digital’s business model and the connections between the company and B. Riley. Two market analyst firms, Wolfpack Research and The Bear Cave, published reports raising concerns about the viability of Applied Digital’s business model and its claims of being an AI company. These reports led to a decline in the company’s stock price. Additionally, The Friendly Bear published a report stating that B. Riley was controlling managerial decisions at Applied Digital to the detriment of its shareholders.
## Editor’s Note: GPT News Room Opinion
It is crucial for investors to be aware of potential securities violations and the impact they can have on a company’s stock price. The class action lawsuit against Applied Digital Corporation highlights the importance of accurate and transparent information provided by publicly traded companies. Investors should carefully evaluate the statements made by companies regarding their business, operations, and compliance policies to make informed investment decisions.
For more news and updates on important legal matters, visit the [GPT News Room](https://gptnewsroom.com).
***Contact Information:***
Robert S. Willoughby
newaction@pomlaw.com
888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 7980
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