COMPLAINT for VIOLATIONS of the FEDERAL V
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James E. Cecchi Donald A. Ecklund CARELLA, BYRNE, CECCHI, OLSTEIN, BRODY & AGNELLO, P.C. 5 Becker Farm Road Roseland, New Jersey 07068 (973) 994-1700 Joseph E. White, III Lester R. Hooker SAXENA WHITE P.A. 5200 Town Center Circle, Suite 601 Boca Raton, Florida 33486 (561) 394-3399 Attorneys for Plaintiff UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY RAJIV SHARMA, Individually and on Case No. Behalf of All Others Similarly Situated, Plaintiff, CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL v. SECURITIES LAWS EROS INTERNATIONAL PLC, JYOTI JURY TRIAL DEMANDED DESHPANDE, ANDREW HEFFERNAN, and PREM PARAMESWARAN, Defendants. CLASS ACTION COMPLAINT Plaintiff Rajiv Sharma (“Plaintiff”), by and through his attorneys, alleges the following upon information and belief, except as to those allegations concerning Plaintiff, which are alleged upon personal knowledge. Plaintiff’s information and belief is based upon, among other things, his counsel’s investigation, which includes without limitation: (a) review and analysis of public filings made by Eros International Plc (“Eros” or the “Company”) and other related parties and non-parties with the United States Securities and Exchange Commission (“SEC”); (b) review and analysis of press releases and other publications disseminated by certain of the Defendants and other related non-parties; (c) review of news articles, shareholder communications, and postings on Eros’ website concerning the Company’s public statements; and (d) review of other publicly available information concerning Eros and the Individual Defendants (as defined below). NATURE OF THE ACTION AND OVERVIEW 1. This is a federal securities class action against Eros and certain of its officers and/or directors for violations of the federal securities laws. Plaintiff brings this action on behalf of all persons or entities that purchased Eros securities between November 12, 2013 and November 13, 2015, inclusive (the “Class Period”), seeking to pursue remedies under the Securities Exchange Act of 1934 (the “Exchange Act”). The Exchange Act claims allege that Defendants engaged in a fraudulent scheme to artificially inflate the Company’s stock price. As a result of the fraud described below, the Company has lost a substantial portion of its value. 2. Eros is a global company in the Indian film entertainment industry. Eros co- produces, acquires and distributes Indian language firms in multiple formats worldwide. The Company is incorporated in the Isle of Man and maintains its U.S. executive offices in Secaucus, New Jersey. CLASS ACTION COMPLAINT 1 3. The Company also has an on-demand entertainment portal, Eros Now, which is accessible via internet-enabled devices to paying users. The Company has touted the new streaming service as having huge growth potential. In order to grow the streaming service, Eros acquired popular titles to incentivize viewers to pay the streaming fee to the Company. 4. On November 12, 2013, Eros priced its initial public offering (“IPO”) of 5,000,000 shares of common stock at a price of $11.00 per share. The Company also granted the underwriters the option to purchase an additional 750,000 shares. 5. On October 30, 2015, research firm Alpha Exposure published an article titled “Unlike The Name, Investors Should Not Love EROS” asserting, among other things, that: (1) due to aggressive accounting practices, Eros’ reported earnings are significantly overstating the economic reality of its business model; (2) Eros’ subsidiary financials reveal a lack of free cash flow, thereby raising many questions about the Company’s accounting; (3) the Company enriched its controlling family at the expense of shareholders through a series of related-party transactions; and (4) the Company appears to have made meaningful misstatements to investors. 6. On this news, shares of Eros declined $1.69 per share, approximately 13%, to close at $11.17 per share on October 30, 2015, on unusually heavy volume. 7. On November 10, 2015, research firm Alpha Exposure published another article asserting that: (1) Eros engaged in pervasive accounting deception related to its revenue figures; (2) the Company overstated the number of movies it had distributed by 124% and 200% during fiscal years 2014 and 2015, respectively; and (3) the Company overstated its theatrical revenue by 82% and 104% during the fiscal years 2014 and 2015, respectively. CLASS ACTION COMPLAINT 2 8. On this news, shares of Eros declined $3.78 per share, approximately 31%, over the next two trading sessions to close at $8.25 per share on November 11, 2015, on unusually heavy volume. 9. On November 12, 2015, Eros issued a press release entitled, “Eros Says Content is at the Core of Their Business and Baseless and Misleading Allegations Don’t Change Their Fundamentals.” Therein, the Company reassured investors that its new release films slate and its content library were thoroughly reviewed and accurate. Eros further emphasized that a list of its fiscal years 2014 and 2015 film release slate was now available on the Company’s website. 10. On November 13, 2015, research firm Alpha Exposure published another article stressing that: (1) Eros’ management avoided releasing a list of distributed films until the stock had dropped 30%; (2) the list of distributed films had fewer films on it than they had previously disclosed; (3) 34 films, or 26% of the films in the management’s list, were theatrically released prior to the fiscal year indicated, and one film had yet to be released; and (4) the Company overstated theatrical revenues by at least 49% and 116% during the fiscal years 2014 and 2015, respectively. 11. On this news, shares of Eros declined $1.82 per share, over 20%, to close at $7.08 per share on November 13, 2015, on unusually heavy volume. 12. Throughout the Class Period, Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (1) the Company lacked adequate internal controls; (2) Eros enriched its controlling family at the shareholders’ expense through a serious of related-party transactions; (3) the Company overstated the number of movies it had distributed during fiscal CLASS ACTION COMPLAINT 3 years 2014 and 2015; (4) the Company overstated its theatrical revenue during fiscal years 2014 and 2015; (5) as a result, Eros’ financial results and operating metrics were overstated; (6) the Company’s financial statements were not prepared in accordance with Generally Accepted Accounting Principles (“GAAP”); and (7) as a result of the foregoing, Defendants’ statements about Eros’ business, operations, and prospects were materially false and/or misleading at all relevant times. 13. As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages. JURISDICTION AND VENUE 14. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. § 240.10b-5). 15. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §1331 and Section 27 of the Exchange Act (15 U.S.C. §78aa). 16. Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and Section 27 of the Exchange Act (15 U.S.C. §78aa(c)). A substantial portion of the acts in furtherance of the alleged fraud, including the effects of the fraud, have occurred in this Judicial District. Additionally, Eros’ principal executive office is located within this District. 17. In connection with the acts and omissions alleged herein, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications, and the facilities of the national securities markets. CLASS ACTION COMPLAINT 4 PARTIES 18. Plaintiff Rajiv Sharma, as set forth in the accompanying certification, incorporated by reference herein, purchased Eros common stock during the Class Period, and suffered damages as a result of the federal securities law violations and false and/or misleading statements and/or material omissions alleged herein. 19. Defendant Eros is an Isle of Man corporation with its principal executive offices located at 550 County Avenue, Secaucus, New Jersey 07094. 20. Defendant Jyoti Deshpande (“Deshpande”) was, at all relevant times, Group Chief Executive Officer (“CEO”) and Managing Director of Eros. 21. Defendant Andrew Heffernan (“Heffernan”) was Chief Financial Officer (“CFO”) of Eros until May 28, 2015. 22. Defendant Prem Parameswaran (“Parameswaran”) was Group CFO and President of North American of Eros beginning May 28, 2015. 23. Defendants Deshpande, Heffernan and Parameswaran are collectively referred to hereinafter as the “Individual Defendants.” 24. During the Class Period, the Individual Defendants, as senior executive officers and/or directors of Eros, were privy to confidential, proprietary and material adverse non-public information concerning Eros, its operations, finances, financial condition and present and future business prospects via access to internal corporate documents, conversations and connections with other corporate officers and employees, attendance at management and/or board of directors’ meetings and committees