In the wake of an ongoing accounting probe and the resignation of two top finance executives, Spirit AeroSystems is facing a class-action lawsuit filed in federal court in the Northern District of Oklahoma on Monday.
The plaintiff, a shareholder named Jacob Goldman, is seeking redress, both individually and on behalf of other shareholders similarly situated, for financial damages caused by the company’s announcement of noncompliance in accounting processes and, consequently, a significant decline in the market value of the company’s securities.
In December, Spirit AeroSystems’ compliance program raised concerns about the company’s non-compliance in its accounting processes, which led the company to commence an internal review. The concerns were proven valid; in late January the aerostructures manufacturer publicly fell on its sword, announcing “it did not comply with its established accounting processes related to certain potential contingent liabilities that were received by Spirit after the end of the third quarter 2019.”
Along with this admission, the company took the opportunity to announce a transition in its finance organization leadership. Chief Financial Officer Jose Garcia and Principal Accounting Officer John Gilson tendered their resignations “in light of [the internal review’s] findings” and were replaced by Mark Suchinski and Damon Ward, respectively.
Spirit President and CEO Tom Gentile announced the company was “pleased” with the transition at the time of the announcement.
Fast forward to this week: Goldman’s lawsuit alleges the company—and specifically, Gentile, Garcia, and Gilson, who are all named as defendants—knew there were inaccuracies in the financial reporting prior to the internal review and subsequent announcement, and that they, directly or indirectly, disseminated false and misleading statements and information, which directly resulted in the artificial inflation of the prices of Spirit securities.
Specifically, the lawsuit alleges the corporation violated section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10(b)-5 promulgated thereunder by the SEC. The lawsuit also alleges the defendants (Gentile, Garcia, and Gilson) individually violated section 20(a) of the Exchange Act.
Spirit filed a Form 10-Q with the SEC on Oct. 31, 2019, signed by Gilson and Garcia, which provided its financial results and position for the fiscal quarter ended Sept. 26, 2019 (3Q 2019). The Form 10-Q contained signed certifications by Gentile and Garcia attesting to the accuracy of the financial reporting.
Specifically, the Form 10-Q stated: “Our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of September 26, 2019 and have concluded that these disclosure controls and procedures…are effective.”
Goldman’s lawsuit alleges the Form 10-Q was materially false and/or misleading, and that the defendants knew the company lacked effective controls over financial reporting, or at the very least, recklessly disregarded that information.
When the Jan. 30 press release announcing the accounting probe along with Garcia’s and Gilson’s resignations went public, Spirit’s shares fell $2.56 per share, or approximately 4 percent on unusually high volume, damaging investors.
The plaintiff, Goldman, is seeking redress for these damages for himself and on behalf of any other members of the class who purchased Spirit securities between the time period of Oct. 31, 2019, and Jan. 29, 2020. The exact number of class members (i.e. purchasers of Spirit securities during this time window) is unknown to Goldman, but he believes there are hundreds if not thousands of members, according to the lawsuit.
The plaintiff is demanding a trial by jury and is requesting awarded damages “in an amount to be established at trial,” the legal document states.
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