The engine manufacturer Power Solutions International was recently served with a securities class action lawsuit.
The suit, filed in the U.S. District Court for the Northern District of Illinois, alleges that the company made false or misleading statements and did not disclose issues related to its business, ongoing operations, and future prospects. Earlier this year, Power Solutions twice delayed reporting its second-quarter earnings, stemming from allegations from a former employee related to the company's financial reporting. Specifically, the suit alleges that the company was improperly recording revenues for certain types of transactions and that as a result its financial statements were incorrect. Further, the suit alleges the company failed to set up proper financial controls internally, and that as a result all its reporting lacked a reasonable basis. The suit has a class period of Jan. 15, 2014, to Aug. 15, 2016.
What happened?
Power Solutions was originally supposed to report its second-quarter results in early August, but the announcement was pushed back for the first time on Aug. 4, the initial date for which the call was scheduled, the company reported. This postponement was made, the company indicated, "to allow for more time to finalize its quarterly financial results." It was hoped Power Solutions could get its documentation filed with the U.S. Securities and Exchange Commission by Aug. 10.
Then, on Aug. 15, the company made another announcement, this time saying it missed its filing deadline for that day as well, and pushing off an announcement of second-quarter results even further as a result of the former employee's allegations.
"The company has not completed its financial statements in light of an ongoing review of allegations made by a former employee," Power Solutions announced. "The board and the company take all allegations that concern its financial reporting seriously and initiated an independent review to assess whether there is any merit to them."
The firms's Audit Committee and some outside professionals were reviewing the matter but no timetable was set for the end of the investigation. However, Power Solutions also said that the issue did not affect the company's operations or prospects for long-term growth.
The impact on stock prices
The follow-up revelation of the potential issues on Aug. 15 seems to have started something of a freefall for Power Solutions' stock price. On Aug. 4, the day second-quarter earnings were originally supposed to be announced, the company was trading at $14.30 per share, and actually saw minor upticks soon thereafter. But starting on Aug. 15, conditions got appreciably worse. That day the company closed at $15.43 per share, but just 10 days later had plunged to just $11.35.
The decline has continued more or less unabated ever since. Today, nearly two-and-a-half months after the employee's allegations were brought to light, the stock is trading at just $9.20 per share.
For more information on this case or other class action litigations, please contact Adam Foulke at 203-987-4949 or info@battea.com.