What happens when a unit turns on a company it provides services for and actively works to undermine it? For one thing, the complaint for this class action says that the company must inform investors or be in violation of the Securities Exchange Act of 1934.
The class for this action is all persons and entities who acquired the publicly-traded securities of PCM between August 10, 2015 and May 2, 2017.
PCM resells computer hardware and software and provides IT services to mid-sized and large companies and to government entities. In 2015, it purchased the IT solution assets of a company now called Collab9, which was founded and largely owned by Attiataz “Bob” Din. It placed the assets in a subsidiary called En Pointe Technologies Sales, LLC.
On June 17, 2015, PCM filed an 8-K and attached En Pointe’s financial statements for fiscal years 2012, 2013, and 2014, which PCM said were prepared according to generally-accepted accounting principals (GAAP). It also attached combined financial results for PCM and En Pointe for 2014 and the first three months of 2015. The filing claimed $40 million in goodwill for En Pointe’s assets and over $8 million in intangible assets of which some $6.2 million were in the form of non-compete agreements and contractual relationships.
Unfortunately, the complaint claims that PCM “quickly discovered” that the En Pointe figures were false, overstating the unit’s earning by millions of dollars, overvaluing its assets and earning capacity, and representing an economic loss to PCM. According to the complaint, PCM has admitted this in an Amended Answer to an unrelated Delaware state court case filed against it by Collab9.
The En Pointe assets PCM purchased came with a contract with a company called Ovex Technologies, Ltd., also founded by Din. Ovex provides IT and other services to En Pointe customers and recruits and retains customers. After PCM acquired En Pointe, Ovex also “operated PCM’s information technology structure” with access to confidential information, trade secrets, and non-compete agreements.
According to the complaint, Ovex has been refusing to provide PCM with its own information, has copied confidential information and trade secrets onto external hard drives and passed them to a competitor, and has solicited other Ovex employees to break their agreements with PCM and move to the competitor; and those employees have tried to move PCM’s customers to the competitor. The complaint claims to know this through a California lawsuit filed by PCM against an Ovex supervisor, in which PCM claims that Din still has control of Ovex and has told it to harm PCM.
However, the complaint claims that PCM’s public filings during the class period have never acknowledged these problems—never admitted that the financials were false, never taken an impairment to goodwill or intangible assets, never mentioned the problems with Ovex. According to the complaint, the continual failures to disclose all of this to investors are violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.