MDC Partners has been sued in New York federal court for multiple counts of U.S. Securities and Exchange violations, including numerous “false and misleading statements” about its financial condition and the level of compensation received by former company CEO Miles Nadal.
The suit, which seeks class action status, also cited the company’s failure to disclose certain facts — like an ongoing SEC investigation of the company — which if known publicly, would have dissuaded investors from buying up company shares, traded on the NASDAQ Exchange.
The suit, filed by a firefighters’ pension plan, also named Nadal as a defendant. He resigned under fire from the company on July 20, and has already agreed to pay back to the company some $20 million in improperly expensed items and retention bonuses that he did not earn.
Company CFO David Doft was also been named in the suit along with former Chief Accounting Officer Michael Sabatino, who was relieved of his duties in April and left the company around the same time as Nadal.
The suit claims that the violations took place between September 24th of 2013 and April 27th of this year (the so-called “class period”) when the company disclosed that it was being investigated by the SEC for trading and accounting irregularities, including the sketchy expense items claimed by Nadal.
The suit cites numerous “false and misleading statements” in company SEC filings and other public statements during the class period.
Nadal, CFO David Doft and Sabatino, the suit alleged, “are liable as participants in a fraudulent scheme and course of conduct that operated as a fraud or deceit on purchasers of MDC common stock by disseminating materially false and misleading statements and/or concealing materially false and material facts.”
That scheme misled investors about MDC’s business, operations and management and the “intrinsic value of MDC common stock,” per the complaint.
The alleged deceptions enabled Nadal, Doft, Sabatino and other company insiders to collectively sell their personally held MDC common stock for proceeds in excess of $163.7 million according to the suit, while plaintiff and other shareholders were induced to purchase company shares at “artificially inflated prices.”
Plaintiff and other shareholders outside the company would have avoided the stock, at least at the prices they paid, “if they had been aware that the market prices had been artificially and falsely inflated by Defendants’ misleading statements.”
Most of the insider gains during the class period were received by Nadal. During that time, Nadal sold 5.6 million MDC common shares for proceeds totaling approximately $146.2 million, per the suit.
When MDC finally disclosed the ongoing SEC investigation in late April — about seven months after it began — the stock plummeted by nearly a third. The stock has continued to drift downward and is now about 40% down from its high this year. The shareholder suit was filed Friday after the close of the stock markets. Today MDC Partners is down about 3% in midday trading to $17.06.