Kraton Corporation changed the processing of its Cariflex product in Brazil, and according to the complaint for this securities class action, that resulted in problems. The complaint says that the company hid these problems from investors, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
The class for this action is all persons and entities who acquired publicly-traded securities of Kraton between October 25, 2017 and February 21, 2018.
Kraton makes styrenic block copolymers and other engineered polymers which it sells in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific region. It makes Cariflex, a polyisoprene product, in its Paulinia, Brazil manufacturing facility.
On October 25, 2017, the first day of the class period, Kraton filed a Form 10-Q for the third quarter of 2017. It mentioned its acquisition of Arizona Chemical and later said, “Except for any changes in internal controls related to the integration of Arizona Chemical and its subsidiaries, there were no changes in our internal control over financial reporting” during the quarter.
On the same day, the company held a conference call, in which an analyst asked about the company’s “global projects” and where they were in terms of operating at capacity. The company’s CFO said that the company was “currently in the process of continuing to transition customers” to Cariflex made via a new process in its Brazilian facility. In response to a question about whether the facility’s production was still in the early stages, the CEO said that it was “much further along in the early stages where we got commercial product that’s available for customers.”
However, the complaint claims that these statements were misleading because they omitted important points. According to the complaint, Kraton should not have said it was transitioning customers to the new-process Cariflex, or said that the material was available, because some of the company’s customers had already rejected the product.
When the company filed its Form 10-K fourth quarter and annual report for 2017 a few months later, on February 21, 2018, the company admitted that some of its customers had issues with its new-process Cariflex. “Although material produced using the new process met technical specifications, during the fourth quarter of 2017, some customers notified us that they were experiencing processing issues with the material…. In certain cases, the material was returned to us for evaluation.” The company claimed to have made a number of changes and “these changes appear to be lessening the processing issues.”
At these revelations, the company’s stock fell by 15%.