Published On: Tue, Sep 16th, 2014

Class Action Suit Accusing Israeli Enzymotec of IPO Fraud

Enzymotec on nasdaq

A federal securities class action suit has been filed against the Israeli company Enzymotec, which develops and manufactures nutritional ingredients and medical foods. The suit claims Enzymotec violated U.S. securities laws when it held its IPO in September of 2013.

Enzymotec’s shares fell more than 40% after the allegations of fraud were first revealed. The suit was filed in U.S. District Court for New Jersey by Robbins Arroy LLP.

Perhaps the company’s owners should have taken some of their own medicine, so to speak, if as has been alleged, they really did think that they could get away with fooling America’s SEC, one of the most powerful regulating bodies in the world.

According to the complaint, shares of Enzymotec first dropped 32% to close at $13.75 on May 14, 2014, after the company disclosed in a press release, along with its first quarter 2014 financial results, that new Chinese regulations will require infant formula manufacturers to make changes to their production line, resulting in lower than expected revenue. On August 5, 2014 shares of Enzymotec declined an additional 40% to close at $9.11 after the company announced that second quarter 2014 financial results were impacted in all aspects by the new Chinese regulations.

The complaint further alleges that Enzymotec made false and/or misleading statements and/or failed to disclose that the Chinese market was subject to material and readily identifiable compliance regulations from the Chinese government; the company’s Chinese baby formula business was in jeopardy and subject to decreased revenue; the company breached its joint venture agreement with AarhusKarlshamn AB, therefore reducing its presence in China; and finally, as a result, Enzymotec’s positive statements about the company’s business operations and prospects were unfounded.

Enzymotec’s shares fell to a 52 week low of $8.20 at the end of last week. It had raised $63.5 million in its IPO.

In an effort to put a bandaid on its stock slide, last month Enzymotec replaced its CEO Jacab Bachar with Dr. Ariel Katz. It also brought in Yariv Gratz as VP of operations and Ariel Blumovich as VP of business development.

So far the moves have had no affect and should it lose the suit or be found guilty by American authorities then the company will certainly fold.

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