International litigation funder Vannin Capital (Vannin) and leading global law firm Quinn Emanuel Urquhart & Sullivan (Quinn Emanuel) are investigating a potential class action against publicly-listed SurfStitch Group Limited (ASX:SFR) (“SurfStitch”) on behalf of aggrieved shareholders.

Quinn Emanuel

About us

Vannin Capital is one of the world’s largest and pre-eminent litigation funders. It has staff in London, Paris, Washington DC, Sydney and Melbourne. Vannin is presently funding legal claims for total amounts of billions of dollars.

Quinn Emanuel is one of the world’s most respected law firms and specializes in litigation. Quinn Emanuel is the largest law firm in the world devoted solely to litigation. Quinn Emanuel has more than 700 lawyers in 20 offices all over the world. When representing plaintiffs, Quinn Emanuel has globally won over $50 billion in judgments and settlements. The team from Quinn Emanuel’s Sydney office that will conduct the SurfStitch claim is highly experienced with a long track record of success in class action litigation.

1. Allegations

The proposed claim arises out the enormous decline in the share price of SurfStitch between November 2015 and June 2016 from $2.13 to $0.32

The proposed claim will be on behalf of shareholders who purchased shares in SRF between August 2015 and June 2016.

There are 2 underlying allegations to the proposed claim:

  • Having indicated to the market in August 2015 that it expected its EBITDA in FY2016 to increase by 100% over FY2015, SRF failed to disclose that in fact it was trading at a loss;
  • To cover this up, SRF window dressed its 31 December 2015 results by entering, on 22 December 2015, a series of transactions that enabled it to bring to account revenue of $20.5m (and profit of $18.5M) for a deal to licence the content on its web site. The actual effect of these transactions however was that SRF would incur a loss of approximately $2M.

In August 2015 when it announced its FY 2015 results, SRF also announced that it was comfortable with consensus forecasts of FY2016 EBITDA in the range of $15M to $18M, being an increase over FY2015 of more than 100%. This statement was repeated at an investor presentation in October 2015 and at the AGM on 10 November 2015.

On 22 December 2015 SRF entered a series of agreements with an outside party. One of these agreements entitled SRF to revenue of $20M for licencing content on its web site. This was purportedly payable in April 2016 and thus SRF brought all the revenue to account in its 31 December 2015 accounts.

However, the effect of the other transactions entered into at the same time was that SRF would not on a net basis generate any revenue or profit from the licencing agreement.

SRF announced its 31 December 2015 results on 25 February 2016. It reported EBITDA of $13.9M.

Buried in the results presentation under the heading “FY16 Guidance” was an odd statement “Given the pace of change and long term opportunities presented to the business, Management and the Board believe it is no longer prudent to focus on a defined EBITDA range”. This was particularly strange given that SRF had earned 93% of the low end of its full year estimate of EBITDA in the first 6 months of the financial year.

The share price plunged 38% on this day ($1.73 to $1.07).

The CEO resigned with immediate effect on 10 March 2016.

On 3 May 2016 SRF announced that it expected FY20116 EBITDA to be in the range of $2M to $3M. It’s share price declined by more than 50% on this day ($1.035 to $0.480).

On 9 June 2016, SRF announced that it intended to reverse $20.3M of revenue brought to account in its 31 December 2015 accounts with the consequence that it expected its EBITDA in FY2016 to be a loss in the range of $17.3M to $18.3M. It’s share price declined by 21% on this day ($0.405 to $0.320).

SRF has since issued court proceedings seeking to set aside the transactions relating to the licence deal. SRF alleges that its CEO at the time, in breach of his statutory and fiduciary duties, entered the transactions to window dress its accounts as discussed above.

2. We contend that SurfStitch

Should never have made, or repeated, its forecast of FY2016 EBITDA in the range of $15M to $18M.

Should have disclosed to its shareholders that it was actually trading at a loss.

Should not have brought any revenue or profits to account in its 31 December 2015 financial statements in relation to the licensing deal it did on 22 December 2015

As a consequence, we say that shareholders have claims against SurfStitch under:

  • Section 674 of the Corporations Act (continuous disclosure obligation on listed companies);
  • Section 1041H (1) of the Corporations Act and Section 12DA (1) of the Australian Securities and Investments Commission Act (misleading and deceptive conduct); and
  • Sections 286 and 296 of the Corporations Act in that SRF’s accounts for 1HFY2016 were wrong and were not prepared in accordance with accounting standards.

We contend that the price of SurfStitch shares during the period between 27 August 2015 and 9 June 2016, was higher than it would have been had the true state of SurfStitch’s affairs been known to the market.

3. You may be entitled to recover your loss

If you purchased SurfStitch shares in any of the following periods, and held those shares at the end of the period (that is, you didn’t sell any shares in one of these periods that you had purchased in the same period), you may be entitled to recover some of the losses you will have incurred:

  • 27 August 2015 to 25 February 2016.
  • 26 February 2016 to 3 May 2016.
  • 4 May 2016 to 8 June 2016.

Quinn Emanuel and Vannin are investigating whether a class action against SurfStitch to recover these losses may be viable. This will in part depend on sufficient SurfStitch shareholders registering to participate in any class action against SurfStitch.

4. How do I register my interest in participating?

Please complete the information below to register your interest. Registering does not commit you to joining the Vannin/Quinn Emanuel claim but enables us to keep you informed.

5. Will the information I provide be kept confidential?

Yes. Vannin and Quinn Emanuel take your privacy and information security very seriously. We will not disclose your information to anyone else or use it for any purposes except for the proposed claim against SurfStitch.

6. What happens once I have registered?

In the coming weeks, Vannin will provide you with the following information by email:

  • Copy of a Litigation Funding Agreement. You will be able to “e-sign” the LFA by accessing a secure link, or alternatively, you may print, sign and mail it to us (if you wish).
  • Disclosure information, including a claim summary, FAQ list and conflicts management policy.

If you have any queries, you may contact us at [email protected].

Register your interest

Accordingly, we encourage you to register your interest here: