**Investors Alert: Faruqi & Faruqi LLP Investigates Potential Claims Against Applied Digital Corporation**
*New York, Sept. 2, 2023 /PRNewswire/* — Leading national securities law firm, Faruqi & Faruqi, LLP, is currently investigating potential claims against Applied Digital Corporation (NASDAQ: APLD). Investors who suffered losses exceeding $100,000 investing in Applied Digital stock or options between April 13, 2022, and July 26, 2023, have until October 11, 2023, to seek the role of lead plaintiff in a federal securities class action.
If you fit this profile and would like to discuss your legal rights, contact Faruqi & Faruqi partner Josh Wilson directly at 877-247-4292 or 212-983-9330 (Ext. 1310). Alternatively, you can visit www.faruqilaw.com/APLD for additional information. Remember, there is no cost or obligation to you.
**Understanding the Allegations**
The complaint against Applied Digital Corporation alleges that throughout the Class Period, the Company’s Defendants made false and misleading statements regarding its business, operations, and compliance policies. These misleading statements include an overstatement of the profitability of its datacenter hosting business and its ability to successfully transition into a low-cost AI Cloud services provider.
Moreover, it is alleged that Applied Digital’s Board of Directors was not independent as per NASDAQ listing rules. Consequently, the Company is accused of overstating its business model’s efficacy and failing to maintain proper corporate governance standards. The revelation of these alleged falsehoods could potentially result in significant financial and reputational harm to Applied Digital.
**Understanding the Background**
Applied Digital Corporation conducted its initial public offering (IPO) in April 2022, issuing 8 million shares of common stock. The IPO price was set at $5.00 per share, generating approximately $40 million in proceeds. B. Riley Securities, Inc., an investment bank and subsidiary of B. Riley Financial, Inc., was the primary underwriter for the IPO.
However, concerns arise due to the close connections between Applied Digital and B. Riley. For instance, Applied Digital’s CEO, Wesley Cummins, sold a majority interest in a registered investment adviser controlled by him to B. Riley Financial. He then became President of B. Riley Asset Management. Additionally, two members of Applied Digital’s Board, Chuck Hastings and Virginia Moore, also held close connections to B. Riley.
**The Impact of NASDAQ Listing Rules**
Applied Digital, as a NASDAQ-traded company, is obligated to comply with certain listing rules. NASDAQ Listing Rule 5605(b)(2) mandates that a majority of the Company’s Board of Directors must be comprised of independent directors. An independent director is defined by Nasdaq Listing Rule 5606(a)(2) as someone who is not an Executive Officer or employee of the Company and does not have relationships that could interfere with their independent judgment.
Despite the close associations between Applied Digital and B. Riley, the IPO Prospectus assured investors that Applied Digital’s board composition and corporate governance met the requirements of NASDAQ.
**Recent Developments and Scrutiny**
To further complicate matters, Applied Digital announced the launch of its cloud service designed to empower artificial intelligence applications on May 15, 2023. Shortly after, on May 23, 2023, the Company entered into a loan and security agreement with B. Riley Commercial Capital, LLC, and B. Riley Securities. The purpose of this agreement was to provide additional liquidity for the buildout of Applied Digital’s AI cloud platform and data centers. Surprisingly, Applied Digital repaid the loan balance well ahead of its contractual maturity, aligning with B. Riley’s efforts to finance its acquisition of Franchise Group, Inc.
In July 2023, market analysts began examining Applied Digital’s business model and the connections between Applied Digital and B. Riley. Wolfpack Research and The Bear Cave published short reports raising concerns about the Company’s viability and its claims of transitioning into an AI Cloud service provider. These reports resulted in a significant drop in Applied Digital’s stock price.
Following those reports, The Friendly Bear published another report, asserting that B. Riley was controlling managerial decisions at Applied Digital to the detriment of its shareholders. The report also uncovered apparent conflicts of interest that may have undermined the Company’s investigation into sexual harassment claims against Defendant Cummins. As a result, Applied Digital’s stock price experienced further decline.
**Your Legal Options**
If you suffered significant financial losses as a result of investing in Applied Digital Corporation between April 13, 2022, and July 26, 2023, you may have legal recourse. To discuss your options and learn more about your rights, contact Faruqi & Faruqi partner Josh Wilson directly at 877-247-4292 or 212-983-9330 (Ext. 1310). You can also visit www.faruqilaw.com/APLD for additional information. Remember, there is no cost or obligation to you.
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**Editor Notes**
Individual investors should always remain vigilant and be aware of any potential securities fraud. Conducting thorough due diligence before making investment decisions is crucial to mitigate risks. If you believe you have been a victim of securities fraud or have concerns about the practices of any publicly traded company, speak with an experienced securities attorney who can provide legal guidance.
*Editor’s Opinion:*
The case against Applied Digital Corporation raises serious concerns about alleged misrepresentations of the company’s business, governance standards, and connections to B. Riley. These allegations underline the importance of transparency and proper corporate governance in the securities market. Investors must be cautious and informed, and they should seek legal advice if they believe their rights have been violated.
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