Eros International Plc’s legal troubles continue to mount. Goldberg Law PC, a US-based law firm, said that it is investigating the Bollywood production and distribution house for potential misrepresentations. The development was first reported by the Economic Times. The legal firm invited shareholders to discuss the case without any fees.
Goldberg Law had also filed a class action suit in November 2015. The complaint alleges that Eros engaged in a series of related-party transactions that benefitted its controlling family at the expense of investors. It further stated that Eros did not have adequate internal controls in place and that Eros exaggerated the number of movies it distributed during fiscal years 2014 and 2015.
Goldberg Law also joins San Francisco-based law firm Lieff Cabraser Heimann & Bernstein in filing a class action suit against Eros. Leiff Cabraser Heimann & Bernstein announced the lawsuit on behalf of investors who purchased securities of the company.
The Bombay Stock Exchange sought an explanation from the Indian subsidiary, Eros International Media, and the company responded saying that Eros had already submitted a statement regarding the allegations to the stock exchange in November.
Alpha Exposure stories
Over November and October 2015, US-based research firm Alpha Exposure published a series of articles which alleged that the company overstated its revenues and 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. Read more on the Alpha Exposure stories here, here and here.
Stock downgraded by Wells Fargo
Earlier in October, Eros’ stock was downgraded by Wall Street Bank Wells Fargo. According to the investment bank, Eros’ continued increase in revenues from the UAE is unexplained. The company in its explanation said that Eros International Plc, consolidates its subsidiary financials, and cancels out all inter-company transactions between the group companies and only reports the third party revenues, costs and profitability and that analyzing subsidiary financials which in isolation can be extremely misleading.