Fusion Connect, Inc.
- Company Name
- Fusion Connect, Inc.
- Stock Symbol
- Class Period
- August 14, 2018 to April 2, 2019
- Motion Deadline
- June 15, 2019
- Southern District of New York
The complaint charges Fusion and certain of its current and former officers with violations of the Securities Exchange Act of 1934. Fusion is engaged in cloud communications, cloud connectivity, cloud infrastructure, cloud computing and managed cloud-based applications solutions. On May 4, 2018, Fusion acquired Birch Communications Holdings, Inc. through a merger of a Fusion subsidiary with and into Birch.
The complaint alleges that during the Class Period, defendants made false and misleading statements and/or failed to disclosed adverse information regarding Fusion’s business and financial results, including that Fusion had been overstating its earnings (or understating its net losses) for the year ended December 31, 2017 and the quarters ended June 30, 2018 and September 30, 2018, by failing to properly account for and capitalize costs associated with the customer on-boarding process of its recently acquired Birch subsidiaries. As a result of this information being withheld from the market, the price of Fusion common stock was artificially inflated to a high of more than $4 per share during the Class Period.
Then on April 2, 2019, Fusion announced that it would not be able to file its 2018 annual report by the April 2, 2019 deadline and that its financial statements for the year ended December 31, 2017 and the second and third quarters of 2018 could no longer be relied upon and would have to be restated. The Company stated that, in connection with the first audit of its financial statements post-Birch merger, it had “determined that the process used by certain of its Birch subsidiaries for capitalizing costs associated with the customer on-boarding process and the related judgments and estimates were not designed with sufficient precision,” resulting in “an understatement of expenses” that was “anticipated to be material to the impacted periods.” In addition, the Company stated that, while it had not determined the precise amount of required restatements, “it currently estimates such amounts to range between $2.3 million and $3.0 million with respect to the year ended December 31, 2017 and ranging from $3.4 million and $4.1 million and $1.7 million and $2.3 million with respect to the quarters ended September 20, 2018 and June 30, 2018, respectively.” On this news, the price of Fusion stock fell more than 80%, or $0.98 per share, to close at $0.22 per share on April 3, 2019.