Currently my firm is investigating Ubiquiti Networks, Inc. (NASDAQ: UBNT), a company that makes broadband internet products with a focus on emerging markets, for potential violations of the federal securities laws. Our investigation coincides with a recent string of newly-minted public tech companies that have found themselves under the spotlight of the federal securities laws.
Tech Company IPOs
Most tech companies follow a well-worn model: conceive an idea, get private funding, implement the idea and then take the company public, repaying the early investors and rewarding the company’s insiders. Tech companies have been a hot commodity on Wall Street and even dramatized in a Hollywood blockbuster. Many investors bought in at the companies’ IPOs, buoyed by sky-high hopes and a chance to catch the wave of the future.
When a company goes public, investors depend on its registration statement and prospectus to tell them the truth about the company — good and bad. Investors often have little else to go on, because private companies are not required to publicly report their business results and have been known to closely guard that information. That’s why the federal securities laws require full disclosure of all material information in a company’s offering documents, and impose strict liability for any misrepresentations or omissions.
In the last few months, several one-time Wall Street tech darlings have found their offering documents and public statements under increasing scrutiny. For example, multiple class action lawsuits have alleged that Facebook and its underwriters selectively shared material information with prominent clients while leaving ordinary investors in the dark. As I’ve written before, investors hoping for an IPO “pop” instead hold shares trading at about half of the IPO price.
Similarly, social gaming giant Zynga, some of its executives and underwriters have been hit with lawsuits alleging that Zynga failed to disclose material information about the company’s future business in offering documents for a secondary IPO in April. These investors claim that several Zynga insiders used the secondary IPO to cash out before the public learned about the company’s problems. Zynga’s market capitalization today is around $2 billion, approximately a fifth of the company’s market cap from December 2011.
Back to my firm’s investigation of Ubiquiti. According to a complaint Ubiquiti filed in federal court this May, Ubiquiti learned in March 2011 that one of its former distributors was operating a counterfeit ring. The fraudsters manufactured knock-offs of Ubiquiti’s most popular product in China and sold the fakes in direct competition with real Ubiquiti products in several of Ubiquiti’s target markets. In October 2011 alone, the counterfeit ring apparently shipped over 31,000 units worth about $1 million.
October 2011 was also the month that Ubiquiti went public. The IPO was a success: the company and insiders sold over 7 million shares for gross proceeds over $105 million. But absent from Ubiquiti’s offering documents was information concerning the Chinese counterfeit ring; Ubiquiti did not disclose that information until May 2012, months after the IPO. By the time the public learned the nature and extent of the counterfeiting ring, Ubiquiti’s shares were down nearly 75% from their highest trading level, leading to high Ubiquiti stock losses for some investors.
Invest In Ubiquiti?
If you or someone you know invested in Ubiquiti and you have more questions about our investigation, please contact us. Free and confidential consultations are available with one of our securities attorneys by calling toll-free (866) 981-4800 or filling out the form to the right.
Why Girard Gibbs?
Girard Gibbs is a national litigation firm representing consumers, investors, employees, and small businesses in cases involving consumer protection, personal injury, securities, antitrust, and employment laws. The firm’s senior partners, Daniel Girard and Eric Gibbs, have been selected for inclusion in The Best Lawyers in America® 2012 and Northern California Super Lawyers, and have earned AV-Preeminent ratings from Martindale-Hubbell, recognizing them in the highest class of attorneys for professional ethics and legal skills.