Liberty Tax, Inc.
- Company Name
- Liberty Tax, Inc.
- Stock Symbol
- Class Period
- June 29, 2016 to December 11, 2017
- Motion Deadline
- February 13, 2018
- Eastern District of New York
The complaint charges Liberty Tax and certain of its officers with violations of the Securities Exchange Act of 1934. Liberty Tax has more than 4,000 Liberty Tax Service® offices in the United States and Canada and prepares more than two million individual tax returns annually.
The complaint alleges that throughout the Class Period, defendants made false and misleading statements and/or failed to disclose adverse information regarding the Company’s business and operations. Specifically, defendants failed to disclose that Liberty Tax’s former CEO John T. Hewitt had created an inappropriate tone at the top that led to ineffective entity level controls over the organization. As a result of the failure to disclose this information, Liberty Tax securities traded at artificially inflated prices during the Class Period, with the price of its stock reaching a high of more than $15 per share.
On November 7, 2017, Liberty Tax announced the abrupt resignation of its CFO, Kathleen Donovan. On this news, the price of Liberty Tax shares fell $2.25 per share, or 16%, to close at $11 per share.
Then on December 11, 2017, Liberty Tax filed a Form 8-K with the SEC announcing the sudden resignation of its independent registered public accounting firm, KPMG LLP, and a delay in the filing of its quarterly report on Form 10-Q for the quarter ended October 31, 2017. According to the Form 8-K, KPMG had expressed “concern that the actions of former Chief Executive Officer John T. Hewitt, who remains the Chairman of the Board and controlling stockholder as the sole holder of the Company’s outstanding Class B common stock, have created an inappropriate tone at the top which leads to ineffective entity level controls over the organization.” The Form 8-K also stated that the Audit Committee had investigated allegation of misconduct by Hewitt prior to his termination on September 5, 2017, which included Hewitt replacing two independent Board members “around the time information relating to this investigation appeared in media reports.” In addition, Hewitt “may have continued to interact with franchisees and area developers of the Company” after his termination. As a result, KPMG “informed the Audit Committee and management that it ha[d] concerns regarding the Company’s internal control over financial reporting as related to integrity and tone at the top and such matters should be evaluated as potential material weaknesses,” and that it would “no longer be able to rely on management’s representations, and therefore . . . KPMG [was] unwilling to be associated with the Company’s consolidated financial statements.” On this news, the price of the Liberty Tax shares fell $0.80 per share, or over 6%, to close at $11.15 per share on December 11, 2017.