SITO Mobile Ltd. conducted its initial public stock offering (IPO) on September 16, 2016. The complaint for this class action claims that the company made misleading statements to the pubic before, during, and after this event, in violation of the Securities Act of 1933 and the Exchange Act of 1934.
The class for this action is all those who acquired SITO Mobile common stock in or traceable to SITO Mobile’s IPO or on the NASDAQ Capital Market between August 15, 2016 and January 2, 2017 and were damaged thereby.
SITO is an advertiser that operates a “mobile location-based media platform” that lets customers create advertising “based on location, interests, behaviors and loyalty” and places the ads on consumer mobile phones at times and places when the company feels the ads are likely to be most effective.
According to the complaint, the first problem was SITO’s lack of disclosures during the 2016 presidential campaign. Elections are known to depress advertising spending, the complaint says, because the of the higher prices charged during these periods as well as the desire not to have advertising crowded out by political messages.
The complaint says that the election had a highly negative effect on SITO’s revenues for the third and fourth quarters of 2016. However, that was precisely the period during which the company conducted its IPO, and the complaint claims that the company’s lack of disclosure of the problems allowed it to keep the stock price high, so that it earned over $10 million from the IPO.
On November 14, 2016, the company reported its third-quarter earnings, and while it noted that demand was weaker, it attributed that to “seasonality” rather than to the election. Even so, investors reacted and the company’s stock price fell by 26%.
Only around six weeks later, when announcing preliminary fourth-quarter results on January 3, 2017, did the company admit that the problem was the presidential election. At this time, the stock declined by 32%.
The second problem was that, during the class period, the company’s CEO and CFO were misappropriating money from the company. The complaint alleges that the substantial funds generated from the IPO during this time might have been enough to cover their wrongdoing. The complaint also claims that both had unexercised stock options and that the inflated stock price put their options in the money.
The company claimed that the two had “resigned” on February 17 and March 10, 2017, but the resignations were followed by an investigation of the use of the company’s credit and debit cards that showed their misappropriation of company funds.