Why would a new CEO and CFO resign after less than two months with a company? According to the complaint for this class action, in Syncronoss’s case, it’s likely they had a full view of the company’s deteriorating financial condition plus the illicit measures that had been taken to hide it—which the complaint claims are violations of the Securities Exchange Act of 1934.
The class for this action is all persons and entities who acquired the securities of Synchronoss between February 3, 2016 and June 13, 2017.
Between 2000 and 20112, Synchronoss specialized in activating mobile devices, such as cell phones, for companies such as AT&T. In 2013, the company began to focus on providing cloud services.
According to the complaint, as the company’s revenues fell, founder and CEO Stephen G. Waldis and CFO Karen L. Rosenberger took illegal steps to hide the company’s deteriorating condition:
In December 2016, Synchronoss announced a company transformation, borrowing $900 million to buy Intralinks Holdings. Later, it made the Intralinks CEO the new CEO of Synchronoss and also hired a new CFO. In addition, it sold a portion of its activation business to Sequential.
In February 2017, an article published by the Southern Investigative Reporting Foundation (SIRF) claimed that Synchronoss had had engaged in improper transactions with Sequential. Synchronoss then disclosed the improperly-booked $9.2 million fee, and the stock price fell by 5%.
In April, the new CEO and CFO resigned, as the company missed the earnings guidance that had been set earlier by Waldis and Rosenberger. At this, the stock price fell by 46% in a single day.
In June, Synchronoss finally admitted that its figures for the past two fiscal years had been overstated by as much as $105 million and would need to be restated. At this, the stock lost more than 60% of its value.
However, the complaint claims that Waldis and Rosenberger did not lose when the stock fell, having unloaded more than $14 million worth of company shares during the class period.
The company has admitted to a “material weakness in internal control over financial reporting” the complaint claims, but has refused to identify the transactions, customers, and agreements involved.