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# Pomerantz LLP Files Class Action Lawsuit Against Applied Digital Corporation – A Deep Dive into the Allegations and Potential Consequences
**New York, September 9, 2023** – Pomerantz LLP, a renowned law firm that specializes in class action lawsuits, recently filed a lawsuit against Applied Digital Corporation (NASDAQ: APLD) and certain officers. The class action, docketed under 23-cv-01805 in the United States District Court for the Northern District of Texas, represents all individuals and entities, excluding the defendants, who purchased or acquired Applied Digital securities between April 13, 2022, and July 26, 2023 (the “Class Period”). The lawsuit aims to recover damages resulting from the defendants’ alleged violations of the federal securities laws.
### Understanding the Class Action Lawsuit
If you are a shareholder who purchased or acquired Applied Digital securities during the Class Period, you have until October 11, 2023, to make a request to the court to be appointed as the Lead Plaintiff for the class. Detailed information about the lawsuit and how to join can be found at www.pomerantzlaw.com. For further inquiries, reach out to Robert S. Willoughby at newaction@pomlaw.com or call toll-free at 888.476.6529 (or 888.4-POMLAW), extension 7980. Make sure to include your mailing address, telephone number, and the number of shares you purchased when contacting by email.
### An Introduction to Applied Digital Corporation
Formerly known as Applied Blockchain, Applied Digital is a company that specializes in the design, development, and operation of data centers in North America. They also offer various artificial intelligence (AI) cloud services, including computing data center hosting and crypto data center hosting services.
In April 2022, Applied Digital conducted its initial public offering (IPO), issuing 8 million shares of common stock at $5.00 per share, resulting in approximately $40 million in proceeds. The IPO was facilitated by B. Riley Securities, Inc., a subsidiary of B. Riley Financial, Inc., a diversified financial services platform. Applied Digital’s securities began trading on the Nasdaq Global Select Market on April 13, 2022.
### Allegations of Conflicts of Interest
The Offering Documents related to the IPO highlighted several close connections between Applied Digital and B. Riley. For example, Applied Digital’s CEO, Wesley Cummins, sold a majority interest in a registered investment adviser controlled by him to B. Riley Financial in August 2021. Following this transaction, Cummins became the President of B. Riley Asset Management while serving as the CEO and President of B. Riley Capital Management, LLC. Additionally, members of Applied Digital’s Board, Chuck Hastings and Virginia Moore, were affiliated with B. Riley. Hastings served as the CEO of B. Riley Wealth Management, Inc., and Moore is married to the CEO of B. Riley Securities.
Despite these connections, Applied Digital assured investors in the IPO Prospectus that it had structured its Board composition and corporate governance to meet the requirements of Nasdaq Listing Rule 5605(b)(2), which mandates a majority of independent directors on a company’s board. However, allegations raised in the lawsuit suggest that Applied Digital’s Board may not have met the independence requirements defined by Nasdaq listing rules.
### Unveiling Misleading Statements and Poor Corporate Governance
The complaint filed in the class action lawsuit alleges that throughout the Class Period, the defendants made false and misleading statements about Applied Digital’s business, operations, and compliance policies. Specifically, it is claimed that the defendants overstated the profitability of the company’s data center hosting business and its ability to successfully transition into a low-cost AI cloud services provider. The lawsuit also contends that Applied Digital’s Board of Directors did not meet Nasdaq listing rules’ definition of independence, thus undermining the efficacy of the company’s business model and corporate governance standards.
The revelation of these alleged misrepresentations and poor corporate governance practices has the potential to severely impact Applied Digital’s financial standing and reputation.
### Scrutiny by Market Analysts and Short Reports
In July 2023, market analysts began closely examining Applied Digital’s business model while uncovering the interconnectedness between Applied Digital and B. Riley. Wolfpack Research and The Bear Cave, two market analysis firms, published short reports on Applied Digital on July 6, 2023. These reports questioned the viability of Applied Digital’s business model and highlighted concerns about the company’s claims of being an AI cloud service provider. The reports alleged that Applied Digital had deceived investors and peddled false AI-related offerings without substantial substance.
As a result of the publication of these short reports, Applied Digital’s stock price fell by 14.16%, or $1.27 per share, to close at $7.70 per share on July 6, 2023.
### The Friendly Bear Report and B. Riley’s Influence
Subsequently, on July 26, 2023, The Friendly Bear released a short report on Applied Digital. The report focused on B. Riley’s allegedly controlling influence over Applied Digital and claimed that the company’s board failed to meet the independence requirements set by Nasdaq rules. The report aimed to shed light on Applied Digital shareholders’ perceived disadvantage due to B. Riley’s control over managerial decisions.
Now that these allegations of misconduct and influence have come to light, Applied Digital and its executives face potential legal consequences and reputational damage.
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