Investigation into Potential Claims Against Applied Digital Corporation
Faruiqi & Faruiqi, LLP, a prominent national securities law firm, is conducting an investigation into potential claims against Applied Digital Corporation (referred to as “Applied Digital” or the “Company”) APLD. Investors who suffered losses exceeding $100,000 from 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 against the Company. To learn more about your legal rights, you can contact Faruqi & Faruqi partner Josh Wilson directly at 877-247-4292 or 212-983-9330 (Ext. 1310), or visit their website at www.faruqilaw.com/APLD. There is no cost or obligation to you.
The Allegations against Applied Digital Corporation
The complaint alleges that throughout the Class Period, Applied Digital and its defendants made false and misleading statements about the Company’s business, operations, and compliance policies. They specifically overstated the profitability of its datacenter hosting business and its ability to transition into a low-cost AI Cloud services provider. Moreover, the complaint asserts that Applied Digital’s Board of Directors did not meet the requirements of the NASDAQ listing rules for independence, and as a result, the Company failed to maintain proper corporate governance standards. These false statements and lack of disclosure regarding the Company’s actual status were likely to cause significant financial and reputational damage once revealed.
Background on Applied Digital Corporation
Applied Digital conducted its initial public offering (IPO) in April 2022, issuing 8 million shares of common stock at $5.00 per share for approximately $40 million in proceeds. B. Riley Securities, Inc., an investment bank and subsidiary of B. Riley Financial, Inc., served as the primary underwriter for the IPO. The Offering Documents revealed close connections between Applied Digital and B. Riley, such as the CEO of Applied Digital, Wesley Cummins, having sold a majority interest in a registered investment adviser controlled by him to B. Riley Financial and becoming President of B. Riley Asset Management. At the time of the IPO, Cummins also served as the CEO and President of B. Riley Capital Management, LLC. Two members of the Board, Chuck Hastings and Virginia Moore, also had close ties to B. Riley.
Nasdaq Listing Rule Violation
As a company listed on NASDAQ, Applied Digital is required to comply with Listing Rule 5605(b)(2), which states that a majority of the Board must consist of independent directors. However, despite the close connections between Applied Digital and B. Riley, the IPO Prospectus assured investors that the Company had structured its Board composition and corporate governance to meet the NASDAQ requirements.
Suspicions Surrounding Applied Digital’s Actions
On May 15, 2023, Applied Digital announced the launch of its cloud service to empower artificial intelligence applications. Eight days later, the Company entered into a loan and security agreement with B. Riley Commercial Capital, LLC and B. Riley Securities, claiming it would provide additional liquidity for the buildout of its AI cloud platform and data centers. However, Applied Digital repaid the loan balance ahead of schedule, coinciding with B. Riley’s financing efforts for the acquisition of Franchise Group, Inc.
Multiple Reports and Decline in Stock Price
In July 2023, market analysts began scrutinizing Applied Digital’s business model and the connections between Applied Digital and B. Riley. On July 6, 2023, Wolfpack Research and The Bear Cave published short reports on Applied Digital, questioning the Company’s business model and alleging it was not a legitimate AI company. Following the publication of these reports, Applied Digital’s stock price dropped significantly.
The Friendly Bear published another short report on July 26, 2023, expressing the view that B. Riley was controlling managerial decisions at Applied Digital to the detriment of shareholders. The report also highlighted conflicts of interest and criticized the way the Company handled sexual harassment claims against its CEO. Applied Digital’s stock price further declined following the publication of this report.
Join the Class Action Lawsuit
If you suffered losses exceeding $100,000 from investing in Applied Digital stock or options between April 13, 2022, and July 26, 2023, you have an opportunity to seek the role of lead plaintiff in the federal securities class action against the Company. Contact Faruqi & Faruqi, LLP to discuss your legal rights and become part of the lawsuit.
Editor Notes: Promote GPT News Room
In conclusion, the investigation into potential claims against Applied Digital Corporation sheds light on the alleged deceptive practices by the Company and its Board of Directors. If you were affected by the misleading statements and false portrayals made by Applied Digital, it is crucial to take action and join the class action lawsuit. For more news and updates on similar legal matters and investigations, visit GPT News Room.
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