Hughes v. KIT digital, Inc., et al.December 18, 2012
Newman Ferrara LLP announced today that it filed a class action lawsuit in the U.S. District Court for the Southern District of New York (Case No. 1:12-cv-9210) against KIT digital, Inc. ("KIT") and certain of KIT's officers and directors for violations of federal securities laws.
On November 21, 2012, KIT announced that on November 15, 2012, the Audit Committee of KIT's Board of Directors concluded that, because of errors and irregularities in KIT's financial statements, KIT needed to restate its financial statements for each of the first three quarters and full years in 2009, 2010 and 2011 and for the first two quarters of 2012. KIT stated that the accounting errors and irregularities relate primarily to the improper recognition of revenue from perpetual license agreements entered into in 2010 and 2011. KIT reported that it could not timely file its financial results for the fourth quarter of 2012 and cancelled its 2012 annual stockholder meeting. KIT cautioned that it "cannot currently quantify the potential impact of the restatement."
On this news, shares of KIT stock plummeted 64% in value to a November 23, 2012 closing price of $0.74 per share. KIT stock dropped another 16% on the following trading day to a November 26 closing price of $0.62 per share.
On November 23, 2012, KIT's former Chief Executive Officer, Kaleil Tuzman, sent KIT's Board a letter criticizing KIT's management for its "deficient management and poor business execution" and offering to purchase KIT for $3.75 per share in cash.
The Complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, against KIT and certain of its officers. The Complaint alleges that the defendants issues false and/or misleading statements and omissions regarding the adequacy of KIT's system of internal controls over its financial reporting and the existence of irregularities with KIT's accounting relating, in part, to the improper recognition of revenue for certain license agreements.
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