A securities class action suit was filed against an Indian motion picture production and distribution company following claims that its statements on the economic viability of its business model were not true.
The lawsuit against Eros International PLC was filed in the U.S. District Court for the District of New Jersey on behalf of investors who purchased shares in the company during the class period between Nov. 12, 2013 and Nov. 13, 2015, according to a press release. The class action claim alleges that the defendants made materially false and misleading statements concerning Eros’ business, operational and compliance policies.
Class action claims Eros overstated financials
Eros is one of the top Indian companies in the global film industry. It co-produces, acquires and distributes Indian-language films around the world. The company holds the rights to more than 2,300 films in its library, according to its investor relations page. Most recently it announced an Indian adaptation of Jon Favreau’s “Chef.”
“Eros lacked proper internal controls, a class action suit alleges.”
The class action filing claims that Eros made decisions beneficial to its controlling family at the expense of individual shareholders. It goes on to allege that the company lacked proper internal controls. This led to it overstating the number of movies it has distributed and its theatrical revenue, and, as a result exaggerating its financial results and operating metrics. The lawsuit also claims that the company’s financial statements were not compliant with generally accepted accounting principles.
Series of Alpha Exposure reports prove detrimental to Eros’ stock
On Oct. 30 Alpha Exposure, a research firm, published a report on the company called “Unlike the name, investors should not love Eros.” The report alleged that due to the company’s “aggressive accounting principles,” its reported earnings were exaggerating the economic realities of its business model by a substantial amount. Alpha Exposure noted that Eros’ subsidiary financials allegedly displayed a lack of free cash flow, a cause for concern regarding its accounting. The report also touched on the company’s alleged practice of enriching its controlling family at the expense of shareholders. Following this news, stock in the company fell $1.69 per share, or 13.14 percent, to close at $11.17 on Oct. 30.
Less than two weeks later, on Nov. 10, the research firm published another report on the company. This time, Alpha Exposure alleged that Eros practiced pervasive accounting deception concerning its revenue figures. It went on to claim that the company overstated the number of movies it distributed by 124 percent in 2014 and 200 percent in 2015. The company also allegedly exaggerated its theatrical revenue by 82 percent and 104 percent in 2014 and 2015, respectively. After the release of the second Alpha Exposure report, Eros’ stock fell once again, this time $3.78 per share over two trading days, or 30.56 percent. On Nov. 11, Eros closed at $8.25.
Not long after, on Nov. 13, Alpha Exposure published yet another report on Eros. It claimed that the company had avoided releasing a movie list, then, when it finally did, the list contained fewer films than Eros has previously stated publicly. This news brought the company’s stock down once again.
For more information on this case or other class action litigations, please contact Adam Foulke at 203-987-4949 or info@battea.com.