Freedom Foods (ASX: FNP) and its auditors Deloitte have been hit with a second class action today, with law firm Phi Finney Mcdonald (PFM) alleging the company misled shareholders.
Backed by litigation funder Omni Bridgeway (ASX: OBL), the class action is brought by Lester Buch on behalf of shareholders and alleges that Freedom Foods improperly capitalised certain expenses and failed to write off certain inventory.
PFM claims these accounting practices, signed off by Deloitte, contravened accounting standards and resulted in FNP significantly overstating its financial position and performance in its annual and half yearly reports.
Shareholders who owned securities in the snack maker between 7 December, 2014 and 24 June, 2020 are able to participate in the class action.
"Mr Buch brings this action over allegations of significant disclosure failures by Freedom Foods and misleading and deceptive conduct on the part of both Freedom Foods and Deloitte," says PFM.
"The above alleged conduct by Freedom Foods and Deloitte was particularly egregious and betrayed mum and pop investors who trusted Freedom Foods with their savings.
"The plaintiff will seek orders which would guarantee group members the lion's share of any recovery and provide certainty that any settlement or award cannot be diluted by legal costs."
This latest court case follows a class action brought by Slater and Gordon (ASX: SGH) on behalf of shareholders in 2020, alleging the cereal and snack manufacturer contravened its obligations by failing to keep the market informed.
In particular, Slater and Gordon alleged FNP failed to provide a true and fair view of the company's financial position in its full and half-year financial reports.
Further, the law firm claimed Deloitte had not obtained sufficient audit evidence to provide a basis for its audit opinions in each of those reported between FY14 and FY19.
As reported by the AFR, the firm alleged FNP had withheld material information relating to its true asset position since 2014.
"The class action alleges that Freedom Foods contravened its continuous disclosure obligations by failing to keep the market informed of price-sensitive information relevant to its FY20 and historic financial performance, and further that it made statements to the market which were misleading or deceptive," Slater and Gordon practice group leader Emma Pelka-Caven said in December 2020.
Investors who held shares in Freedom Foods between 7 December, 2014 and 24 June, 2020 are able to participate in Slater and Gordon's class action.
Freedom Foods was suspended from trading on 25 June, following the publication of a trading update in which the company announced it had to write down the value of obsolete and out-of-date stock to the value of approximately $60 million.
Later that month, managing director and CEO Rory Macleod resigned from all board and executive positions at Freedom Foods. He was later replaced by Michael Perich as interim CEO.
On the same day, the company entered into an agreement with Ashurst and PwC to advise and assist with ongoing investigations into the company's financial position.
Following that, Freedom Foods' CFO Stephanie Graham resigned, and was immediately replaced by Josée Lemoine.
The company remains in a trading halt to this day as it finalises a $200 million capital raise with major shareholder Arrovest.Never miss a news update, subscribe here. Follow us on LinkedIn, Instagram and Twitter.
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