Dec 31, 2017 | Securities Class Action Archive
Kobe Steel Products – Shanghai Issues Metal Products Safety Warning
On December 28, 2017, Reuters reported (“Shanghai cautions on products from scandal-hit Kobe Steel, tightens checks”) that
Shanghai has issued a warning on the safety of metal products manufactured by scandal-hit Japanese firm Kobe Steel Ltd . . . and strengthened scrutiny measures, state-owned Xinhua News Agency reported, citing the city’s inspection body.
Japan’s No.3 steelmaker, which supplies the makers of cars, planes and trains across the world, said in October that about 500 of its customers had received products with falsified specifications. The producer’s quality certifications at some domestic plants have already been suspended.
According to the Xinhua report, Kobe [Steel] shipped in 451,000 tonnes of metal products to China through its Shanghai units over September 2016 to August 2017. Of that, data on 1,420 tonnes of aluminium sheet and 116 tonnes of copper sheet had been tampered, it added, citing the Shanghai Entry-Exit Inspection and Quarantine Bureau.
While Kobe’s Shanghai units have been in touch with their customers to check on safety of the products, the inspection bureau has said it will continue supervising the units to protect interests of Chinese consumers, Xinhua reported.
The bureau will conduct checks on all products made in Japan by Kobe Steel and set up a special technical investigation team to check its products that are involved with data falsification and release results on a routine basis, the report added.
The bureau will also conduct regular checks on Japan-made metal products imported through the Shanghai port and has already made a full retrospective investigation on related operations by Kobe Steel’s units in the city.
Kobe Steel Products – Europe Warns Aviation Industry to Suspend Use of Kobe Steel Metal Products
In October 2017, CNN Money reported (“Europe to planemakers: Stop buying Kobe Steel products”) that “Europe has issued a warning to the aviation industry: Stop using metal from scandal-plagued Kobe Steel.” The CNN Money article reported that
[t]he European Aviation Safety Agency (EASA) advised manufacturers in a statement Wednesday to suspend their use of Kobe Steel . . . products after the Japanese firm admitted to falsifying data.
The regulator recommended that aircraft makers find alternative suppliers and conduct a “thorough review of their supply chain.”
It’s the first such advisory to be issued by a major regulator since Kobe Steel came clean . . . over faking strength and durability data on thousands of tons of aluminum and copper parts.
The revelation left plane, train and automakers across the world scrambling to gauge their exposure to the suspect parts.
Further, the CNN Money article reported that
Kobe Steel has warned that the practice of falsifying quality data, including on its steel products, could spread back 10 years or more. The company has apologized.
Around 500 customers are thought to be impacted, according to a Kobe Steel spokesperson.
Kobe Steel Products – European Aviation Safety Agency (“EASA”) Issues Safety Advisory
In October 2017, Nikkei Asian Review reported (“EU aviation regulator issues advice on Kobe Steel parts”) that
The European Aviation Safety Agency issued a safety advisory notice . . . to airlines operating in the region, recommending them not to use parts made by Japan’s Kobe Steel, which has admitted to falsifying quality data on its aluminum and other products.
The safety information bulletin, also issued to aircraft maintenance and relevant companies in the region, does not restrict air travel in the region.
The EASA is responsible for setting safety rules and approving aircraft parts as well as maintenance procedures, among other things.
In the notice, the EASA recommended relevant parties to first check any product made by Kobe Steel that is currently being used; review their supply chains for maintenance parts; report to relevant regulatory authorities if Kobe Steel products are used; and, if possible, use alternative suppliers until the safety of Kobe Steel products is confirmed.
Kobe Steel Products – EASA “Safety Information Bulletin”
The subject of the European Aviation Safety Agency’s Safety Information Bulletin, dated October 17, 2017, was titled “Kobe Steel Ltd. Material – Falsified Inspection Data.” According to the Safety Information Bulletin:
As reported in recent media articles, Kobe Steel Ltd., a Japanese metals producer, found that their workers have, possibly over a period of many years, fabricated the inspection data on certain parts and shipped those parts, possibly not meeting the customer’s specification, to a wide range of companies manufacturing a wide range of products, parts and appliances, and components thereof.
The EASA’s Safety Information Bulletin included the following recommendations:
All [organizations] that may have specified or used Kobe Steel products should do a thorough review of their supply chains in order to identify if, and when, Kobe Steel products have been used in their product designs and fabrications.
In addition to informing their customers, production and repair approval holders are advised to inform their competent authority of the use of such materials, if not already known by the competent authority.
Design approval holders are advised to establish the scope of use of affected parts in its products, paying particular attention to identifying such material usage in more critical applications, e.g. Primary Structure, Principal Structural Elements, Critical Parts and Systems. Where alternative suppliers are available, it is recommended to suspend use of Kobe Steel products until the legitimacy of the affected parts can be determined. [Emphasis added]
Kobe Steel Scandal: Profits & Demanding Corporate Culture
In November 2017, The Telegraph, among other things, reported (“Kobe Steel quality scandal driven by pursuit of profits and demanding corporate culture”) that “Scandal-hit Kobe Steel’s troubles were driven by a relentless focus on profits and the company’s regimented corporate culture, which led to more than decade of faked quality guarantees on its products.”
Kobe Steel Investors Who Purchased, or Otherwise Acquired, Kobe Steel American Depositary Receipts (“ADRs”)
Kehoe Law Firm recently reported about its securities investigation related to improper conduct concerning aluminum and copper products manufactured by Kobe Steel and the recently filed securities class action filed against Kobe Steel (OTCMKTS:KBSTY) and certain officers and/or directors, on behalf of all persons who purchased, or otherwise acquired, Kobe Steel ADRs between May 29, 2013 and October 12, 2017, inclusive (“Class Period”), for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
Kobe Steel Class Action Lawsuit
The Kobe Steel class action lawsuit complaint alleges that throughout the Class Period, Kobe Steel Defendants made materially false and misleading statements regarding Kobe Steel’s business, operational and compliance policies and/or failed to disclose that 1) Kobe Steel falsified data on many of its aluminum, copper and steel products sold to customers; 2) Kobe Steel sold products that in reality failed quality control tests in violation of laws and regulations; 3) Kobe Steel’s financial performance relied on selling products that did not meet quality standards in violation of laws and regulations; 4) Kobe Steel would incur significant costs and lose customers if customers became aware of the substandard quality of products they purchased; and 5) Kobe Steel’s compliance initiatives, corporate governance and risk management activities were ineffective and inadequate at preventing product data manipulation, fraud and other related misconduct.
The complaint also alleges that Kobe Steel’s internal reporting systems failed to foster employee participation and adequately address employee concerns, and there was an excessive propensity by senior management, including the individual Kobe Steel Defendants, to hyper-emphasize profitability at all costs, that promoted a pervasive culture of corner-cutting, and looking the other way in the face of compliance violations, as long as profits were achieved, which deterred employees from making claims over product quality for fear of retribution and/or management failing to properly investigate claims.
As a result of the foregoing, Kobe Steel’s ADRs traded at artificially inflated prices during the Class Period and class members suffered significant losses and damages.
Investors who purchased, or otherwise acquired, Kobe Steel American Depositary Receipts and wish to speak privately with a securities attorney about potential legal claims can complete the form above on the right; e-mail [email protected]; or contact John Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected].
Dec 29, 2017 | Shareholder & Investor Protection
Initial Coin Offerings – ICOs
The SEC’s Office of Investor Education and Advocacy has provided the following information to make investors aware of the potential risks of participating in Initial Coin Offerings – ICOs:*
Initial Coin Offerings, also known as ICOs or token sales, are being used to raise capital; however, new technologies and financial products, such as those associated with Initial Coin Offerings, can be used improperly to entice investors with the promise of high returns in a new investment space.
Initial Coin Offerings – Virtual Coins & Tokens – Background
Virtual coins or tokens are created and disseminated using distributed ledger or blockchain technology. Recently, promoters have been selling virtual coins or tokens in Initial Coin Offerings. Purchasers may use fiat currency (e.g., U.S. dollars), or virtual currencies, to buy virtual coins or tokens. Promoters may tell purchasers that the capital raised from the sales will be used to fund development of a digital platform, software, or other projects and that the virtual tokens or coins may be used to access the platform, use the software, or otherwise participate in the project.
Some promoters and initial sellers may lead buyers of the virtual coins or tokens to expect a return on their investment or to participate in a share of the returns provided by the project. After they are issued, the virtual coins or tokens may be resold to others in a secondary market on virtual currency exchanges or other platforms.
Depending on the facts and circumstances of each individual ICO, the virtual coins or tokens that are offered or sold may be securities. If they are securities, the offer and sale of these virtual coins or tokens in an ICO are subject to the federal securities laws.
SEC’s Investigation of a Virtual Organization – Federal Securities Laws Apply
The SEC’s “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO” describes an SEC investigation of The DAO, a virtual organization, and its use of distributed ledger or blockchain technology to facilitate the offer and sale of DAO Tokens to raise capital.
The SEC applied existing U.S. federal securities laws to determine that DAO Tokens were securities. The SEC emphasized that those who offer and sell securities in the United States are required to comply with federal securities laws, regardless of whether those securities are purchased with virtual currencies or distributed with blockchain technology.
The SEC investigative report stated that its investigative
. . . [r]eport reiterates these fundamental principles of the U.S. federal securities laws and describes their applicability to a new paradigm—virtual organizations or capital raising entities that use distributed ledger or blockchain technology to facilitate capital raising and/or investment and the related offer and sale of securities. The automation of certain functions through this technology, “smart contracts,”[] or computer code, does not remove conduct from the purview of the U.S. federal securities laws.[] This Report also serves to stress the obligation to comply with the registration provisions of the federal securities laws with respect to products and platforms involving emerging technologies and new investor interfaces. [Emphasis added]
Image: Pixabay, Gerd Altmann (geralt), CC0 1.0 Universal
Initial Coin Offerings & Virtual Currency – Some Concepts to Help Investors Understand a New, Complex Investment Area
Blockchain
A blockchain is an electronic distributed ledger or list of entries – much like a stock ledger – that is maintained by various participants in a network of computers. Blockchains use cryptography to process and verify transactions on the ledger, providing comfort to users and potential users of the blockchain that entries are secure. Examples of blockchain are the Bitcoin and Ethereum blockchains, which are used to create and track transactions in bitcoin and ether, respectively.
Virtual Currency, Token or Coin
A virtual currency is a digital representation of value that can be digitally traded and functions as a medium of exchange, unit of account, or store of value. Virtual tokens or coins may represent other rights as well. Accordingly, in certain cases, the tokens or coins will be securities and may not be lawfully sold without registration with the SEC or pursuant to an exemption from registration.
Virtual Currency Exchange
A virtual currency exchange is a person or entity that exchanges virtual currency for fiat currency, funds, or other forms of virtual currency. Virtual currency exchanges typically charge fees for these services. Secondary market trading of virtual tokens or coins may also occur on an exchange. These exchanges may not be registered securities exchanges or alternative trading systems regulated under the federal securities laws. Accordingly, in purchasing and selling virtual coins and tokens, you may not have the same protections that would apply in the case of stocks listed on an exchange.
Issuance of Virtual Tokens or Coins
Virtual tokens or coins may be issued by a virtual organization or other capital raising entity. A virtual organization is an organization embodied in computer code and executed on a distributed ledger or blockchain. The code, often called a “smart contract,” serves to automate certain functions of the organization, which may include the issuance of certain virtual coins or tokens.
Initial Coin Offerings – Participation in an Initial Coin Offering – Things to Consider
Depending on the facts and circumstances, the offering may involve the offer and sale of securities. If that is the case, the offer and sale of virtual coins or tokens must itself be registered with the SEC, or be performed pursuant to an exemption from registration. Before investing in an ICO, ask whether the virtual tokens or coins are securities, whether the persons selling them registered the offering with the SEC, in addition to keeping the following in mind about registration:
-If an offering is registered, you can find information (e.g., registration statement or “Form S-1”) on SEC.gov through the SEC’s EDGAR.
-If a promoter states that an offering is exempt from registration, and you are not an accredited investor, you should be very careful – most exemptions have net worth or income requirements.
-Although Initial Coin Offerings are sometimes described as crowdfunding contracts, it is possible that they are not being offered and sold in compliance with the requirements of Regulation Crowdfunding or with the federal securities laws generally.
Ask what your money will be used for and what rights the virtual coin or token provides to you. The promoter should have a clear business plan that you can read and that you understand. The rights the token or coin entitles you to should be clearly laid out, often in a white paper or development roadmap. You should specifically ask about how and when you can get your money back in the event you wish to do so. For example, do you have a right to give the token or coin back to the company or to receive a refund? Can you resell the coin or token? Are there any limitations on your ability to resell the coin or token?
If the virtual token or coin is a security, federal and state securities laws require investment professionals and their firms who offer, transact in, or advise on investments to be licensed or registered. At Investor.gov, one can check the registration status and background of these investment professionals.
Ask whether the blockchain is open and public, whether the code has been published, and whether there has been an independent cybersecurity audit.
Fraudsters often use innovations and new technologies to perpetrate fraudulent investment schemes. Fraudsters may entice investors by touting an Initial Coin Offering investment “opportunity” as a way to get into this cutting-edge space, promising or guaranteeing high investment returns. Investors should always be suspicious of jargon-laden pitches, hard sells, and promises of outsized returns. Also, it is relatively easy for anyone to use blockchain technology to create an ICO that looks impressive, even though it might actually be a scam.
Virtual currency exchanges and other entities holding virtual currencies, virtual tokens or coins may be susceptible to fraud, technical glitches, hacks, or malware. Virtual tokens or virtual currency may be stolen by hackers.
Investing in an Initial Coin Offering may limit your recovery in the event of fraud or theft. While you may have rights under the federal securities laws, your ability to recover may be significantly limited.
If fraud or theft results in you or the organization that issued the virtual tokens or coins losing virtual tokens, virtual currency, or fiat currency, you may have limited recovery options. Third-party wallet services, payment processors, and virtual currency exchanges that play important roles in the use of virtual currencies may be located overseas or be operating unlawfully.
Initial Coin Offerings – Law Enforcement Challenges & Possible Limitations on Investor Remedies
Law enforcement officials may face particular challenges when investigating ICOs and, as a result, investor remedies may be limited. Challenges include:
Tracing money. Traditional financial institutions (such as banks) often are not involved with ICOs or virtual currency transactions, making it more difficult to follow the flow of money.
International scope. ICOs and virtual currency transactions and users span the globe. Although the SEC regularly obtains information from abroad (such as through cross-border agreements), there may be restrictions on how the SEC can use the information and it may take more time to get the information. In some cases, the SEC may be unable to obtain information from persons or entities located overseas.
No central authority. As there is no central authority that collects virtual currency user information, the SEC generally must rely on other sources for this type of information.
Freezing or securing virtual currency. Law enforcement officials may have difficulty freezing or securing investor funds that are held in a virtual currency. Virtual currency wallets are encrypted and unlike money held in a bank or brokerage account, virtual currencies may not be held by a third-party custodian.
“Guaranteed” high investment returns. There is no such thing as guaranteed high investment returns. Be wary of anyone who promises that you will receive a high rate of return on your investment, with little or no risk.
Unsolicited offers. An unsolicited sales pitch may be part of a fraudulent investment scheme. Exercise extreme caution if you receive an unsolicited communication—meaning you didn’t ask for it and don’t know the sender—about an investment opportunity.
Sounds too good to be true. If the investment sounds too good to be true, it probably is. Remember that investments providing higher returns typically involve more risk.
Pressure to buy RIGHT NOW. Fraudsters may try to create a false sense of urgency to get in on the investment. Take your time researching an investment opportunity before handing over your money.
Unlicensed sellers. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms. Check license and registration status on Investor.gov.
No net worth or income requirements. The federal securities laws require securities offerings to be registered with the SEC unless an exemption from registration applies. Many registration exemptions require that investors are accredited investors; some others have investment limits. Be highly suspicious of private (i.e., unregistered) investment opportunities that do not ask about your net worth or income or whether investment limits apply.
Pixabay, QuinceMedia, CC0 1.0 Universal
Initial Coin Offering Investors
If you invested in an Initial Coin Offering and wish to speak privately with a securities attorney about your potential legal rights, please complete the form on the right or e-mail [email protected].
*Source: U.S. Securities and Exchange Commission’s “Investor Bulletin: Initial Coin Offerings,” available at Investor.gov.
Dec 29, 2017 | Securities Class Action Archive
Ekso Bionics Holdings, Inc. (NASDAQ:EKSO)
According to Ekso Bionics Holdings, the Northern California-based company is a “worldwide pioneer in the field of robotic exoskeletons” which is “committed to developing the latest technology and engineering to help people rethink current physical limitations and achieve the remarkable.” Ekso’s “products unlock human strength, endurance, and mobility potential, with broad applications across medical and industrial markets.”
Ekso Bionics Holdings Concludes that Ekso Bionics’s Report on Effectiveness of Ekso Bionics’s Internal Control Over Financial Reporting as of December 31, 2016 Should No Longer Be Relied Upon
Ekso Bionics filed a Form 8-K, dated December 14, 2017, which stated:
On December 8, 2017, OUM & Co. LLP (“OUM”) notified Ekso Bionics Holdings, Inc. . . . that it had concluded that its report on the effectiveness of [Ekso Bionics’s] internal control over financial reporting as of December 31, 2016 should no longer be relied upon and that a material weakness in [Ekso Bionics’s] internal control over financial reporting existed as of such date. [Emphasis added]
The share price of Ekso Bionics Holdings, on this news, fell $0.15, or 6.17%, to close at $2.28 on December 15, 2017.
The Form 8-K filed by Ekso Bionics Holdings also stated:
As part of its original audit of [Ekso Bionics’s] financial statements included in the 2016 10-K, OUM assessed [Ekso Bionics’s] internal control over financial reporting as of December 31, 2016. At that time, OUM and [Ekso Bionics] concluded that [Ekso Bionics] maintained effective internal control over financial reporting as of December 31, 2016.
Subsequent to the issuance of the 2016 10-K, the Public Company Accounting Oversight Board conducted an inspection of OUM’s 2016 audit of [Ekso Bionics]. As a result, OUM reevaluated [Ekso Bionics] information technology (IT) general controls, and has now concluded that a “material weakness” existed as of December 31, 2016. [Emphasis added]
As a result of the identified material weakness, OUM has performed additional testing on [Ekso Bionics’s] financial statements as of and for the year ended December 31, 2016 to reconfirm their opinion on the fairness of the financial statements included in the 2016 10-K without reliance on the effectiveness of [Ekso Bionics’s] internal controls. As noted above, OUM has now reconfirmed its unqualified opinion on the fairness of [Ekso Bionics’s] financial statements included in the 2016 10-K.
After consultation with OUM, management has now concluded that [Ekso Bionics’s] internal control over financial reporting was not effective at December 31, 2016 and, accordingly, its disclosure controls and procedures were not effective at December 31, 2016 or for subsequent interim periods. As a natural course of business, management has, over the course of 2017, been working to further strengthen its internal controls. Specifically, [Ekso Bionics] has implemented a more robust accounting and enterprise resource planning system with software provided by Infor (which became operational in October 2017). [Emphasis added]
Ekso Bionics To Amend Its Filings To Reflect Material Weakness in Internal Control Over Financial Reporting
Ekso Bionics’s Form 8-K also stated that Ekso Bionics
. . . plan[s] to amend [its] Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2017, June 30, 2017 and September 30, 2017 to reflect the conclusion by management that there was a material weakness in internal control over financial reporting and that [Ekso Bionics’s] disclosure controls and procedures were not effective as of the end of the periods covered by these reports. OUM’s auditor’s report on the Company’s internal control over financial reporting will also be revised to state that [Ekso Bionics’s] internal control over financial reporting at December 31, 2016 was not effective.
Ekso Bionics Amended Annual & Quarterly Reports & Stock Drop
Post-market, on December 27, 2017, Ekso Bionics filed an amended annual report (Form 10-K/A) for 2016 and amended quarterly reports for the first three quarters of 2017.
On this news, Ekso’s share price fell sharply during intraday trading on December 28, 2017.
According to Ekso Bionics’s amended annual report:
As previously disclosed in Item 8.01 of our Current Report on Form 8-K filed on December 14, 2017, [Ekso Bionics’s] independent registered public accounting firm, OUM & Co. LLP (“OUM”) notified management and the Audit Committee of Ekso Bionics Holdings, Inc. (the “Company”) that it had concluded that its report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 should no longer be relied upon and that a material weakness in the Company’s internal control over financial reporting existed as of such date. [Emphasis added]
. . .
As part of its original audit of the Company’s financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “Original Filing”), OUM assessed the Company’s internal control over financial reporting as of December 31, 2016. At that time, OUM and the Company concluded that [Ekso Bionics] maintained effective internal control over financial reporting as of December 31, 2016.
Subsequent to the issuance of the Original Filing, the Public Company Accounting Oversight Board conducted an inspection of OUM’s 2016 audit of the Company. As a result, OUM reevaluated the Company’s information technology (IT) general controls, and has now concluded that a “material weakness” existed as of December 31, 2016. [Emphasis added]
After consultation with OUM, management also concluded that [Ekso Bionics’s] internal control over financial reporting was not effective at December 31, 2016 and, accordingly, its disclosure controls and procedures were not effective at December 31, 2016. [Emphasis added]
Ekso Bionics – Amended Quarterly Reports
Click 10-Q/A to review Esko Bionics’s 10-Q/A for the quarterly period ended March 31, 2017.
Click 10-Q/A to review Esko Bionics’s 10-Q/A for the quarterly period ended June 30, 2017.
Click 10-Q/A to review Esko Bionics’s 10-Q/A for the quarterly period ended September 30, 2017.
Ekso Bionics Holdings Investors
Kehoe Law Firm, P.C. is investigating whether Ekso Bionics Holdings and certain officers or directors engaged in securities fraud or other unlawful business practices. If you are an Ekso Bionics investor and have questions or concerns about Kehoe Law Firm’s investigation or your potential legal rights, please complete the form above on the right, e-mail [email protected] or contact John Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected].
Dec 28, 2017 | Consumer Protection, Employment & Technology Archive
FTC Alleges Deceptive Claims in Get-Rich-Quick Scheme Whose Operators Claimed Consumers Could Earn Big Money Using “Automatic Money Systems” & “Secret Codes”
On December 28, 2017, the Federal Trade Commission announced that it charged the operators of a get-rich-quick scheme with deceiving consumers by falsely claiming they could earn big money working from home by using products marketed as “secret codes” that were actually generic software products.
FTC Files Complaint for Permanent Injunction & Other Equitable Relief
FTC v. RONNIE MONTANO, individually and as owner of MONTANO ENTERPRISES LLC; HYONG SU KIM, a/k/a JIMMY KIM, individually and as owner of JK MARKETING LLC; MARTIN SCHRANZ, individually and as owner and officer of GSD MASTER AG, MONTANO ENTERPRISES LLC, a New Jersey limited liability company; JK MARKETING LLC, a Nevada limited liability company; GSD MASTER AG, a Swiss limited company
Defendants Allegedly Bilked Consumers Out of Millions by Falsely Promising Consumers Could Earn Hundreds to Thousands of Dollars a Day
The FTC’s announcement states that the complaint, filed in United States District Court, Middle District of Florida, alleges that Ronnie Montano, Hyong Su Kim (also known as Jimmy Kim), Martin Schranz and their related companies bilked consumers out of millions of dollars by falsely promising they could earn hundreds to thousands of dollars a day using the defendants’ Mobile Money Code products. In reality, the Mobile Money Code products were generic software applications that could help the user make mobile-friendly websites.
FTC’s Complaint Alleges Defendants Contacted Consumers with Spam E-Mail
The complaint alleges that the defendants primarily contacted consumers with spam emails sent by affiliate marketers. For example, some emails cited in the complaint claimed that the products were a “secret method folks are using to make thousands of dollars per day (seriously!)” or that users can start “generating 60k a month on 100% autopilot.” The defendants allegedly sold their products through a variety of websites such as mobilemoneycode.com, automobilecode.com and secretmoneysystem.com.
Misleading Spam E-Mail Subject Headings, No Clear Way to Opt Out, False Testimonials & Failure to Honor “Money Back Guarantee”
In addition to the deceptive earnings claims, the defendants allegedly used misleading subject headings in the spam email they sent to consumers and failed to include a clear means to opt out of future messages. Consumers who went to the defendants’ websites were met with more deceptive claims, including online videos that featured individuals who claimed they made hundreds to thousands of dollars per day using the defendants’ products. In reality, these individuals were actors hired by the defendants to provide false testimonials.
Consumers who tried to exit the websites without purchasing a product were allegedly blocked with a series of pop-up messages. Even those consumers who agreed to make an initial purchase were asked to make additional purchases through upsells and add-ons, according to the complaint.
The FTC’s complaint also alleges that the defendants did not honor their “60-day hassle-free money back guarantee” and made it extremely difficult, if not impossible, to obtain a full or partial refund.
The FTC alleges that the defendants violated the FTC Act’s prohibition against deceptive practices and the CAN-SPAM Act, which requires that a commercial e-mail contain accurate header and subject lines, identify itself as an ad, include a valid physical address, and offer recipients a way to opt out of future messages.
The FTC’s complaint summarized the action against the Defendants as follows:
Since 2013, Defendants conducted a business opportunity scheme that established multiple affiliate marketing programs and used them to deceptively market a series of software products and upsell/add-on products and services (the “Mobile Money Code Products”) to consumers looking to make money from home. Defendants marketed the Mobile Money Code Products through a network of affiliates that primarily used unsolicited commercial email (spam) to attract consumers to Defendants’ marketing websites. Defendants (and their affiliates) deceptively marketed the Mobile Money Code Products as risk-free, “automatic money systems” and “secret codes” that could generate hundreds to thousands of dollars each day for users. Based upon such false representations, consumers typically paid Defendants for an initial product purchase and up-sell/add-on products and services, ranging from $49 to several hundred dollars. Only after receipt of the Mobile Money Code Products did some consumers realize that they had purchased generic software applications and commonplace information for creating mobile-friendly websites, and nothing akin to “automatic money systems” or “secret codes.” Defendants made false and unsubstantiated earnings claims, misrepresented the nature of the Mobile Money Code Products, and falsely promised a 60-day, hassle-free, money back guarantee, thereby defrauding consumers of not less than $7 million.
The FTC, according to the complaint, filed the case against the Defendants “. . . under Section 13(b) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. §§ 53(b), and Section 7(a) of the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM Act”), 15 U.S.C.§ 7706(a), to obtain permanent injunctive relief, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief for Defendants’ acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the CAN-SPAM Act, 15 U.S.C. §§ 7701-7713.”
Click here to view the FTC’s Consumer Information blog post regarding the alleged “get-rich-scheme.”
Dec 27, 2017 | Securities Class Action Archive
Kobe Steel Class Action Lawsuit on Behalf of Purchasers or Acquirers of Kobe Steel American Depositary Receipts (“ADR”) Between May 29, 2013 and October 12, 2017, Inclusive (“Class Period”)
On December 26, 2017, a securities class action lawsuit was filed in United States District Court, Southern District of New York, on behalf of all persons who purchased or otherwise acquired Kobe Steel’s American Depositary Receipts (“ADRs”) during the Class Period.
The Kobe Steel class action lawsuit was brought against Kobe Steel and certain of its officers and/or directors for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
Kobe Steel’s “Corporate Profile” reflects that
Kobe Steel, Ltd. is one of Japan’s leading steelmakers, as well as a major supplier of aluminum and copper products. Other business segments consist of wholesale power supply, machinery, construction machinery, real estate, and electronic materials and other businesses.
The Kobe Steel Group is comprised of numerous consolidated and equity-valued companies in Japan, the Americas, Asia and Europe.
KOBELCO is the corporate logo mark and brand name of the Kobe Steel Group.
Kobe Steel Class Action Lawsuit
According to the Kobe Steel class action lawsuit complaint:
At the beginning of the Class Period, Kobe Steel launched a new business plan ostensibly to make [Kobe Steel] more efficient and profitable for sustained growth. The progressive business strategy purported to “reduce fixed costs, procurement costs, quality error costs, and other costs.” Throughout the Class Period, Kobe Steel maintained that its business plan was “making steady progress” consistent with its “Core Values” of “provid[ing] technologies, products and services that win the trust and confidence of our customers we serve and the society in which we live” and “corporate philosophy” of “provid[ing] reliable and advanced technologies, products and services that satisfy customers.”
In tandem with its business plan, Kobe Steel repeatedly represented the quality of its products and integrity of its operations. Kobe Steel frequently emphasized [Kobe Steel’s] compliance with “the laws, corporate rules and societal norms” and that it fostered a culture of high ethical standards and corporate governance where it conducts its “corporate activity in a fair and sound manner with the highest sense of ethics and professionalism.” Throughout the Class Period, Kobe Steel represented its commitment to a strong corporate code of ethics as it “offer[s] excellent products and services” by “operat[ing] business fairly and honestly” and by “comply[ing] with applicable laws, rules and principles of society.” Kobe Steel represented that it prioritized its products and people by “pay[ing] special attention to product safety.” Notably, [Kobe Steel] represented to have “an organizational culture that is highly sensitive to compliance issues” and “[t]horoughly carry out compliance and contribute to society.” Moreover, Kobe Steel represented that its internal reporting system “prevent[s] risks associated with legal, ethical and other compliance-related issues from materializing and spreading.”
However, unbeknownst to the market, Defendants’ . . . Class Period statements pertaining to the specifications of its products and performance of its operations were materially false and misleading because [Kobe Steel] had falsified data on many of [its] products including its aluminum, copper and steel products; and sold products that failed quality control tests in violation of laws and regulations. [Emphasis added]
According to the Kobe Steel class action lawsuit complaint:
On Sunday, October 8, 2017, during the day, [Kobe Steel] issued a press release . . . disclos[ing] that certain of Kobe Steel’s products “did not comply with the product specifications” and “[d]ata in inspection certificates had been improperly rewritten etc., and the products were shipped as having met the specifications concerned.” [Emphasis added]
On this news, ADRs1 of Kobe Steel fell $0.62 per ADR or over 10% from its previous closing price to close at $5.30 per ADR on October 9, 2017. [Emphasis added]
According to the Kobe Steel class action lawsuit complaint:
On October 10, 2017, before the U.S. market opened, Reuters published an article . . . disclos[ing] that several major manufacturers had confirmed use of the affected Kobe Steel products.
On this news, ADRs of Kobe Steel plummeted throughout the trading day. Kobe Steel ADRs ultimately fell $1.30 per ADR or over 24% from its previous closing price to close at $4.00 per ADR on October 10, 2017. [Emphasis added]
Kobe Steel Class Action Lawsuit – Bloomberg: “Kobe Steel Scandal Expands Into Core Business Overseas”
According to the Kobe Steel class action lawsuit complaint:
After the market closed on October 12, 2017, Bloomberg published an article . . . which reported that [Kobe Steel’s] fake data scandal included its core business of steel to numerous international companies.
Bloomberg’s article also stated:
Kobe’s admission of misconduct in its steel business, which accounts for about a third of revenue, ratchets up the pressure on Japan’s third-biggest steelmaker. The company’s disclosures had up until now dealt with aluminum, copper and iron ore products used in everything from cars to computer hard drives to Japan’s iconic bullet trains, although there haven’t been any reports of products being recalled or safety concerns raised.
The deepening scandal “suggests that this is company culture, not just the actions of a few rogue employees,” Alexander Robert Medd, managing director at Bucephalus Research Partnership Ltd. in Hong Kong, said by email. The question to be resolved is “were they trying to save money or just unable to produce the right spec in the right quantities,” he said.
Kobe’s shares have plunged 42 percent this week, including a 9.1 percent drop on Friday, after it revealed on Sunday that it had fudged data on the strength and durability of metals supplied to as many as 200 customers around the world, including Toyota Motor Corp., General Motors Co. and space rocket-maker Mitsubishi Heavy Industries Ltd.
According to the Kobe Steel class action lawsuit complaint:
On October 13, 2017, during U.S. market hours, Kobe Steel issued a press release . . . provid[ing] updated information about an investigation into the falsified data and related wrongdoing and listed numerous nonconforming products [Kobe Steel] had identified to date. On the same day, several media outlets reported that the number of impacted customers had more than doubled from the initial estimates of 200 customers. [Emphasis added]
On this news, ADRs of Kobe Steel fell $0.40 per ADR or over 10% from its previous closing price to close at $3.55 per ADR on October 13, 2017. [Emphasis added]
Kobe Steel Class Action Lawsuit – Additional News
According to the Kobe Steel class action lawsuit complaint, “[s]ubsequent news reports and [Kobe Steel’s] own internal investigation revealed that Kobe Steel’s lack of quality controls and data tampering was a result of, among other things, wholly inadequate and ineffective corporate governance and compliance initiatives.”
Kobe Steel’s Update on Safety Verification Status
On December 22, 2017, Kobe Steel issued an “Update on safety verification status concerning improper conduct in the Kobe Steel Group.”
If you purchased or otherwise acquired Kobe Steel American Depositary Receipts (“ADRs”) and wish to speak privately with a securities attorney about your potential legal rights, please fill out the form above on the right or e-mail [email protected].
