CHC Group Ltd., which runs the world’s largest commercial helicopter operation, has been sued over its $310 million initial public offering (IPO). The class action lawsuit, filed by a shareholder, accuses the company of concealing financial hardships in the runup to its IPO last January. Shareholder Peter McCrory filed the suit last month in New York Supreme Court in Manhattan, claiming CHC failed to tell potential investors that one of its largest customers stopped making payments to the company months before it filed a prospectus for the IPO. It’s alleged that when news about the customer, which accounted for 14 percent of CHC’s business, became public in July, the stock price dropped, causing investors to lose money.
CHC’s failure to disclose a significant loss of income meant the stock’s initial pricing at $10 per share was inflated, McCrory said in his complaint. It was alleged further in the complaint:
The offering materials contained false and/or misleading statements and omissions of material fact and therefore misled investors. Accordingly, the price of the company’s shares was artificially and materially inflated at the time of the offering.
CHC generated $1.8 billion in revenue last year, according to filings with the Securities and Exchange Commission (SEC). A majority of the company’s business is done through providing flights to offshore oil and gas interests with its fleet of 236 helicopters. A crash of one of its aircraft in October 2012 led to a grounding of certain models of medium- and heavy-weight helicopters. One of CHC’s biggest customers, Brazilian energy giant Petroleo Brasileiro SA, or Petrobras, suspended its payments to the company as a result of the grounding, but the company made no mention of this in its prospectus, according to the complaint.
The crash is mentioned in the company’s filing under the “Recent Developments” section, but the filings conclude, “it is too early to determine the extent of the impact of the accident on our results of operations or financial condition based on information currently available.” But McCrory claims in the suit claims that the company knew by the time it was filing for its offering how significant the impact would be. He alleges in his complaint:
It was not ‘too early’ for the company to gauge the impact of the accident, as payments from Petrobras ceased in April 2013, almost seven months before the Registration Statement was filed.
On an earnings call in July, CHC’s chief financial officer, Joan S. Hooper, explained that Petrobras had stopped making payments, and that the company did not believe it would recover any losses related to its contract, according to allegations in the complaint. The price of CHC stock fell from $8.62 before the revelation on July 10 to $7.28 four days after. It should be noted that the company was trading at $1.14 on April 21, 2015. McCrory purchased 1,410 shares of CHC stock, half in September of last year and half last month. The complaints names CHC Group Ltd., a number of the company’s executives and the underwriters of the IPO as defendants. The case was filed in the Supreme Court of the State of New York, County of New York.
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