A number of securities lawsuits were filed against HD Supply Inc. last month by shareholders. The company and its directors were accused of triggering a nearly 20 percent stock drop that cut more than $1.4 billion in market capitalization in a single day. On June 6, the stock price plunged as the onetime unit of The Home Depot Inc. not only reported first-quarter earnings that missed analyst estimates but also disclosed the divestiture of one of its main business segments.

Shares fell 17.5 percent, or $7.24 apiece, to $34.03 from $41.27 that day. But before the company revealed its financial troubles, CEO Joseph J. DeAngelo allegedly sold 80 percent of his stake in HD Supply, dumping 1.3 million shares to take in $53 million, the investors alleged. It was stated:

Despite the disappointing results, and despite their improper sales of large amounts of the company’s stock for their own profit, HD Supply’s senior officers continue to be rewarded with lavish compensation and have personally profited at the expense of the company and its shareholders.

HD Supply, originally a San Diego, California-based industrial supplier called Maintenance Warehouse, was acquired by The Home Depot in 1997. It changed its name to mirror its parent company in 2004, but was spun off in 2007. HD Supply went public in 2013.

Thus far, at least four suits have been filed in Georgia’s Northern District over the company’s or its officers’ alleged concealment that it was having supply chain problems. Zhou and James Calderaro each filed shareholder derivative suits naming company executives as Defendants, while Obioma Ebisike filed a proposed class action on behalf of shareholders for their losses. Each of those suits mirrors claims outlined in a July 10 complaint filed by the City of Hollywood Police Officers’ Retirement System. The Hollywood Police shareholders claimed that HD Supply’s Facilities Maintenance business had suffered supply chain deficiencies in which the company incorrectly calculated the demand for its products, leaving it undersupplied in the 2016 spring and summer selling sessions.

It’s alleged in the lawsuits that management responded by overcompensating, ultimately stretching HD Supply’s distribution centers beyond capacity in the latter half of that year. But in November 2016, executives started saying that Facilities Management was recovering and on track for the following year. While the price was still soaring, DeAngelo allegedly sold off the bulk of his shares in HD Supply, taking in more than $53 million between March 29 and April 4. Then, on June 6, the company reported earnings that missed analysts’ estimates and broke the news that it would sell Waterworks, one of its main business units.

Waterworks is the nation’s largest distributor of water, sewer, storm and fire protection products, the investors said. The company also revealed in its earnings announcement that it would have to invest more money in Facilities Management operations, a sign the unit’s recovery wasn’t as good as the shareholders had been led to believe. The executives had kept negative information about HD Supply’s performance from investors, artificially inflating the price, only to have it plunge to a low it has stayed at since June.

Zhou and Calderaro are represented by Michael I. Fistel Jr., William W. Stone and David A. Weisz of Johnson & Weaver LLP. Calderaro is also represented by Brian J. Robbins, Felipe J. Arroyo and Steven R. Wedeking of Robbins Arroyo LLP. Ebisike is represented by David A. Bain of the Law Offices of David A. Bain LLC; Jeremy A. Lieberman, J. Alexander Hood II, Hui M. Chang and Patrick V. Dahlstrom of Pomerantz LLP; and Peretz Bronstein of Bronstein Gewirtz & Grossman LLC. Hollywood Police is represented by W. Thomas Lacy of Lindsey & Lacy PC; Maya Saxena, Joseph E. White III, Lester R. Hooker and Steven B. Singer of Saxena White PA; and Stuart A. Kaufman of Klausner Kaufman Jensen & Levinson.

The cases are Sean Zhou v. Joseph J. DeAngelo et al., (case number 1:17-cv-02977); James Calderaro v. Joseph J. DeAngelo, (case number 1:17-cv-02983); Obioma Ebisike v. HD Supply Holdings Inc. et al., (case number 1:17-cv-02984); and City of Hollywood Police Officers’ Retirement System v. HD Supply Holdings Inc. et al., (case number 1:17-cv-02587), all in the U.S. District Court for the Northern District of Georgia.

Source: Law360.com

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