US-based law firm Lieff Cabraser Heimann & Bernstein announced that it is bringing a class action lawsuit against Bollywood production house Eros International on behalf of investors who purchased securities of the company. The law firm alleges that Eros made misleading statements and failed to disclose that Eros enriched its controlling family at the expense of shareholders through a series of related-party transactions. Here’s a timeline of events from the October which lead to the law suit:
–October 26: Eros International’s stock rating was downgraded by the Wall Street bank Wells Fargo. According to the investment bank, Eros’ continued increase in revenues from the UAE is unexplained. The downgrade pushed Eros’ stock value on the NYSE down. Overall, the company’s stock fell 16.6% on the New York Stock Exchange after the rating, while on the BSE, its subsidiary Eros International’s stock fell by 3.8%.
– October 26: Eros acknowledged the downgrade of its stock rating and said that downgrades and upgrades happen to stocks regularly and that this was not a cause for concern. The company also held a call with analysts to counter the allegations. However, Wells Fargo was not convinced and released a report the same day. The investment bank said that
“Management broke down the receivables in a very detailed manner, but quite frankly it was still difficult for the analysts on the call to fully grasp the collection cycle and movement of funds (particularly deals booked in the UAE).”
– October 30: US-based research firm Alpha Exposure published an article which alleged that Eros has been overstating its theatrical revenues and raised questions on its subsidiaries. Alpha Exposure alleged that the company overstated its revenues from theatrical releases by stretching its amortization period. Amortization refers to the process of allocating cost to an intangible asset over a period of time. Alpha Exposure also said that by stretching the amortization period, Eros was able to reduce its costs and show higher earnings.
– November 3: Eros issued a clarification on the Bombay Stock Exchange to stem the fall of its stock. The company also hired U.S. law firm Skadden, Arps, Slate, Meagher & Flom LLP to conduct an independent internal review. The company also sought to clear the air over the revenues of its subsidiaries and receivables.
At the same time Eros’ stock fell following a report in the Times of India which said that attorneys in the US had started investigating the company which could leave it open to class action lawsuits. The report had added that Eros was being investigated by law firms Steinmeyer Law, Rosen Law Firm and Bronstein, Gewirtz and Grossman for violating certain sections of the Securities Exchange Act of 1934.
– November 10: Alpha Exposure published another article which challenged the number of movies produced by Eros during FY15 and FY14. Eros claims to have distributed 134 films in the last two fiscal years: 65 films in the fiscal year 2015 and 69 in the fiscal year 2014. Alpha Exposure said that according to their estimates, Eros distributed 52 films during this two-year period.
– November 12: Eros called Alpha Exposure’s claims “baseless.” Eros said that its management attended a conference hosted by Wells Fargo where “where it did not disclose any new information to the market and only reinforced its business fundamentals.”
“No statement was provided concerning the Alpha Exposure article dated November 10, 2015 which made further baseless allegations about the Company’s core business, its content library and film slate,” Eros added.
– November 13: Eros was forced to release the movie list after its stock went down 30%. Alpha Exposure published another story which said that the list of distributed films that had fewer films on it than they have previously publicly disclosed. 34 films were theatrically released prior to the fiscal year indicated. One additional film has yet to be released.
– November 17: Eros reports its financial results for the quarter ended September 30.
Eros’ digital & ancillary business reported revenues of $14.6 million, registering a huge jump of 60.43% from $9.1 million in the same quarter last year. The segment accounted for 14.8% of Eros International’s quarterly revenues that was at $98.8 million for the quarter, up 97.9% year-on-year (YoY). In comparison, the segment had accounted for 20.9% of Eros International’s revenues in the same quarter last year, but total revenues stood at $49.9 million.
Theatrical revenues increased to $61 million for the quarter, from $17.2 million revenues in the same quarter last year. The segment however accounted for 61.7% of Eros International’s quarterly revenues, up from 34.5% contribution in the same quarter last year. The company had released three high budget movie, three medium budget movies and 14 low budget movies during the quarter.
At the same time investment banks Jeffries and Macquarie issued reports which said that they still believed in the company’s fundamentals and that they found no evidence of fraud.
– December 2: San Francisco-based law firm Lieff Cabraser Heimann & Bernstein announced that it is bringing a class action lawsuit against Bollywood production house Eros International on behalf of investors who purchased securities of the company.