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Law firm accuses SFX of making “materially false and misleading statements” during buy-back bid

By | Published on Monday 14 September 2015


A US law firm has filed a class action lawsuit against EDM powerhouse SFX on behalf of anyone who bought shares in the company between 25 Feb and 17 Aug of this year, and is now encouraging investors who did just that to get in touch.

Abbey Spanier LLP, which specialises in class actions – whereby anyone within the ‘class’ defined in the lawsuit can benefit from success in court – alleges that SFX and its CEO Robert FX Sillerman made “materially false and misleading statements” in the first half of this year in relation to the latter’s much publicised plan to buy-back all the shares he doesn’t currently control in the business, so to take it back into private ownership.

As previously reported, Sillerman only floated SFX in 2013, so his buy-back plan was not universally well received by investors when it was first announced back in February. Though a panel of independent directors at SFX approved the proposal after Sillerman made a generous offer to the company’s other shareholders.

Then the SFX share price tanked, making that offer unrealistic, and last month Sillerman admitted that he couldn’t raise enough finance to go through with the proposed deal. He is now working on a plan b, while his company’s independent directors invite others to make bids for some or all of the EDM festival operator and Beatport owner.

Lawyers at Abbey Spanier reckon that Sillerman breached rules under America’s Exchange Act in his dealings earlier this year. The legal firm claimed on Friday: “Sillerman repeatedly affirmed his commitment to acquire SFX. However, [he] knew or recklessly disregarded and failed to disclose that he did not have any financing in place at the time he made his proposal, and knew or recklessly disregarded that he could not obtain the financing to consummate the transaction”.

The lawyers go on: “Given the company’s growing debt and decreasing margins it was not feasible that Sillerman was ever going to buy the company and, with the aid of the other defendants, Sillerman initiated and maintained a sham process designed to lure third party offers, in an attempt to shed his failing investment before the truth about the deterioration of the company could no longer be concealed”.

As for the impact all this might have had on members of the law firm’s class, it goes on: “The effect of the false and misleading statements by defendants during the class period was to fraudulently inflate and maintain the market price of SFX shares at levels that would not otherwise have prevailed based on the true financial performance and future prospects of the company”.

So, bold claims. It’s not clear how big the class Abbey Spanier seeks to represent is, nor how many complainants have actually come forward to date, and it remains to be seen if the court will accept the class action status of this lawsuit. But, amid ongoing speculation about the future of the EDM firm, as Sillerman tries to pull together an alternative buy-back plan, this new litigation could further add to SFX’s woes.