Class Action Lawsuit Filed Against Applied Digital Corporation and Certain Officers
New York, NY / ACCESSWIRE / October 5, 2023 – Pomerantz LLP announces that a class action lawsuit has been filed against Applied Digital Corporation (“Applied Digital” or the “Company”) (NASDAQ:APLD) and certain officers. The class action, filed in the United States District Court for the Northern District of Texas, and docketed under 23-cv-01805, is on behalf of a class consisting of all persons and entities other than Defendants that purchased or otherwise acquired Applied Digital securities between April 13, 2022 and July 26, 2023, both dates inclusive (the “Class Period”), seeking to recover damages caused by Defendants’ violations of the federal securities laws and to pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, against the Company and certain of its top officials. If you are a shareholder who purchased or otherwise acquired Applied Digital securities during the Class Period, you have until October 11, 2023 to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at www.pomerantzlaw.com. To discuss this action, contact Robert S. Willoughby at [email protected] or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 7980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and the number of shares purchased. Click here for information about joining the class action.
Applied Digital Corporation Overview
Applied Digital, originally known as Applied Blockchain, is a company that designs, develops, and operates data centers in North America. They also provide artificial intelligence (AI) cloud services, computing data center hosting, and crypto data center hosting services.
In April 2022, Applied Digital conducted its initial public offering (IPO), raising $40 million in proceeds. The primary underwriter of the IPO was B. Riley Securities, an investment bank and subsidiary of the diversified financial services platform B. Riley Financial.
The Allegations and Close Connections
The class action complaint alleges that throughout the Class Period, Applied Digital and its top officials made false and misleading statements regarding the company’s business, operations, and compliance policies. It further claims that Applied Digital had overstated the profitability of its data center hosting business and its ability to transition into a low-cost AI cloud services provider. The complaint also raises concerns about the independence of Applied Digital’s Board of Directors, considering the close ties between the company and B. Riley Financial.
Despite the connections, Applied Digital assured investors that its Board composition and corporate governance met the requirements of NASDAQ, even though NASDAQ Listing Rule 5605(b)(2) states that a majority of the Board must be comprised of independent directors. The independence requirement refers to individuals who do not have a relationship that would interfere with the exercise of independent judgment.
Fraudulent Activities and Stock Price Impact
In May 2023, Applied Digital announced the launch of its AI cloud service, which was intended to empower artificial intelligence applications. Shortly after, the company entered into a loan agreement with B. Riley Commercial Capital and B. Riley Securities to secure additional funding for its AI cloud platform and data centers. However, Applied Digital repaid the total loan balance years ahead of its contractual maturity, aligning with B. Riley’s own financial activities.
Market analysts started questioning Applied Digital’s business model and examining the connections between the company and B. Riley. The reports by Wolfpack Research and The Bear Cave raised concerns about the viability of the company’s business model and its status as an AI company. Following the publication of these reports, Applied Digital’s stock price experienced a significant decrease.
Finally, The Friendly Bear published a report highlighting B. Riley’s control over managerial decisions at Applied Digital to the detriment of shareholders. This report further emphasized the lack of independence on Applied Digital’s board.
Conclusion and Future Implications
The class action lawsuit against Applied Digital Corporation and certain officers raises serious allegations regarding the company’s misleading statements, corporate governance, and close ties with B. Riley Financial. With market analysts examining the legitimacy of Applied Digital’s business model, it remains to be seen how these developments will impact the company’s reputation and financial standing moving forward.
The recent class action lawsuit against Applied Digital Corporation shines a spotlight on the importance of transparent corporate governance and accurate statements from publicly traded companies. This case serves as a reminder for investors to conduct thorough due diligence and for companies to maintain high ethical standards to build trust in the market. To stay updated on the latest news in the business and financial world, visit GPT News Room.