This class action alleges that Apollo Global Management, LLC fraudulently orchestrated a “restructuring” of CEVA Investments Limited (CIL), in breach of its fiduciary duty, that extinguished the value of shares held by its CEVA-employee investors for the benefit of Apollo. The employee investor plaintiffs believe that their losses in this restructuring amounted to more than 14 million euros.
The class for this action includes all current and former employees of CEVA Logistics (the Employee Investors) who owned restricted Class A shares of stock on or before March 31, 2013.
According to the complaint, until the restructuring, CIL owned 99.9% of the shares of CEVA Group, a holding company for the CEVA Logistics freight management entities that employed the employee investors. CEVA Logistics is a logistics and freight management company that operates from approximately 1,000 locations in 160 countries.
Apollo was the majority shareholder in CIL, the complaint says, and therefore had control over both CIL and CEVA Group. It had created CEVA Logistics through the acquisition and combination of TNT Logistics and EGL, Inc. When Apollo acquired these companies, the complaint alleges, it offered management-level employees the chance to buy restricted stock in the entity that eventually became CIL. Those who did are the employee investors.
In February 2012, according to the complaint, the employee investors received a briefing saying that there would be a refinancing that would help grow the business, reduce risk to equity value, and gain quicker access to the initial public offering (IPO) market. In May, CIL filed papers with the Securities and Exchange Commission in anticipation of an IPO to sell Class B shares of CIL, the complaint says, and on September 12, 2012, at a meeting of CIL’s two directors, the fair market value of Class A stock was determined to be 50 euros per share.
Despite all this, the directors seem to have changed their plans. According to the complaint, they consulted with a number of law firms, which resulted in the restructuring plan in which CEVA Group issued new shares to a new entity, CEVA Holdings, the effect of which was to transfer all equity of CEVA Group held by CIL to CEVA Holdings, without any return or compensation to CEVA.
This extinguished the value of CIL shares, which the complaint alleges was particularly problematic because CIL was supposed to control CEVA Holdings, rather than the other way around. The complaint quotes writings from Apollo’s various attorneys at the time that support its contention that the scheme was questionable, including one that said that the plan was “too forthcoming” and that “this document could conceivable end up in front of a court some day and I want to give off an appearance the we are operating at an arms’ [sic] length basis” (errors contained in the complaint quotation).
The final result was that after the restructuring took place in 2013, the employee investors were left with no equity at all and no compensation for its loss. The complaint thus charges Apollo with fraud and breach of fiduciary duty in engineering and implementing the 2013 restructuring.