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Shiloh (SHLO) Securities Fraud Class Action Lawsuit

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Shiloh shareholder sues for securities fraud

     This federal securities fraud class action complaint alleges that as a result of improper management supervision of employees, Shiloh’s Ohio plant manager overstated profits for 4 financial quarters starting September 2014.  These materially false and misleading statements lured investors into purchasing Shiloh’s common stock on the open market and, eventually, caused them financial losses when the stock price dropped.

Who Is Affected?

     The federal securities fraud class action is brought on behalf of a class consisting of all persons who purchased or otherwise acquired Shiloh Industries, Inc. securities between March 9, 2015 through September 14, 2015, inclusive.  Shiloh Industries manufactures and distributes lightweighting, noise and vibration solutions to automotive, commercial vehicle and other industrial markets.  Shiloh’s products focus on successfully balancing the need to reduce cost, weight and part complexity with the need to enhance performance, safety and fuel efficiency.  Shiloh is incorporated in Delaware with its principal executive offices located in Valley City, Ohio.

Procedural History

     The lawsuit was filed on September 21, 2015 and is captioned Raymond Thomas et al. v. Shiloh Industries, Inc. et al.  It was filed in the New York Southern District Court.  Its civil docket number is 1:15-cv-07449.  The class period runs from March 9, 2015 through September 14, 2015, inclusive.

     On September 9, 2015, Shiloh announced that it would be unable to file its quarterly report on time because of an ongoing internal investigation into the accounting for certain costs at Shiloh’s Ohio facility.  During the balance sheet review process, the management discovered “preliminary indications of a potential issue” with respect to the accounting for inventoried costs.  The management informed the Audit Committee of the Board of Directors and Shiloh’s external auditor.  The Audit Committee hired independent third-party advisors to help in the investigation.

     The majority of the issue, which triggered the investigation is associated with a surcharge assessed on steel at Shiloh’s Ohio facility which has not been included in prior calculations of expenses; once the surcharge is assessed, management believes Shiloh’s net income, which was reported in prior quarters, will drop somewhere between $2.2 and $2.5 million.  Immediately following Shiloh’s announcement on September 9, the following day its stock dropped 16.7% to close at $9.15 per share on September 10, 2015.

     A week later, when Shiloh issued a press release disclosing its financial result for the quarter ending August 31, 2015, it disclosed that “a material weakness existed in the Company’s internal control over financial income for prior periods by over $2 million” and that Shiloh’s financial reports for prior quarters cannot be relied on and will have to be updated and revised.  The Audit Committee’s investigation concluded that Shiloh’s financial statements going back all the way to September 2014 will have to be restated and can no longer be relied on.

     Shiloh has since terminated Ohio facility’s financial leader on allegations that under his control and direction the facility’s financial results had been overstated by means of faulty accounting for inventoried costs, the majority of which was associated with a surcharge assessed on steel.  The press release caused Shiloh’s stock to drop another 16% the following day, to close at $8.58 per share on September 15, 2015.

     The complaint lists as Defendant Shiloh Industries, as well as its CEO, Mr. Hermiz, and its VP of Finance and Treasurer, Mr. Dugan, as Individual Defendants.  The Individual Defendants, in a securities fraud action, are typically the C-level employees at the top of the management hierarchy, who, because of their positions with the company sued, possess the power and authority to control the contents of the company’s reports to the Security and Exchange Commission, press releases and presentations. 

     The Individual Defendants are also the signatories to any release or report, which is filed with the SEC or the general public, and they personally certify to the veracity and completeness of the reports’ content. In its report release post-completion of the investigation, Shiloh management stated “the Company’s internal control over financial reporting may not prevent or detect misstatements because of inherent limitation, including the possibility of human error, the circumventing or overriding of controls, or fraud.”

Current Case Status: 

     This case is in the notice period. When a shareholder brings suit under certain federal securities law, generally that shareholder must give notice via a press release. This notice starts a sixty-day period of time when any shareholder can investigate the underlying claims of the lawsuit and then elect to bring suit as well. At the end of this sixty-day period, the court appoints one shareholder (or a group of shareholders) to prosecute the securities litigation. We will review the docket again in June and update this page as warranted.

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