(CN) - Internet video technology provider Kit Digital misled investors about the cost of integrating 12 corporate acquisitions over three years into its operating structure, shareholders claim in class action filed in Manhattan.
Since 2009 Kit sold $268 million in stock to fund the acquisitions but failed to "properly integrate the acquisitions or put the necessary corporate structure in place to handle its own growth," the suit says.
The shareholders say they were told in late 2011 to expect $300 million in revenue, growth between 25 and 30 percent and earnings per share of $1.45 in 2012 based on an increase in clients and free cash-flow from restructured acquisitions deals.
As late as March 15, Kit CEO Kaliel Tuzman was telling investors that company earnings grew by 12 percent between the third and fourth quarters in 2011.
Then on March 23, the company announced that four of its directors had resigned, including its chief financial officer and that Tuzman would step down as CEO within 6 months. The company's share price suffered its largest one day loss since before January 2010 falling 20 percent, according to the complaint.
A week later, the company announced a "material control weakness" in its internal controls for financial reporting which it blamed on a lack of financial personnel trained in general accepted accounting procedures.
Tuzman announced his resignation as chair of the board of directors on April 16.
The stock plunged a further 30 percent in value on May 3 when the company revealed that it had overstated its success in integrating acquisitions and that it would report a first quarter loss of $8 million.
Tuzman's replacement Barak Bar-Cohen declined to endorse the company's previous projections which were signed and certified by Tuzman and the former CFO Robin Smyth.
The shareholders allege that the company lied about its financial status to prop-up the stock which it was using for acquisitions and to allow Tuzman to sell over $7 million worth of shares in November 2011 when the stock was at a high of $10.46 per share. Kit Digital shares have been trading below $4 per share since the May announcements.
The shareholders are represented by Kim Miller and Bruce Dona with Kahn Swick & Foti in New York and Lewis S. Kahn in Louisian