Maurice Blackburn Lawyers has added to the woes of embattled contract services group Downer EDI (ASX: DOW) after announcing it is investigating the company for a possible shareholder class action.
The law firm says the investigation will focus on Downer EDI’s admissions of misleading growth forecasts that led to a 20 per cent price slump on 8 December last year.
The company at the time also revealed that accounting irregularities had caused it to overstate profits of up to $40 million.
Maurice Blackburn says its investigation will examine whether Downer EDI engaged in ‘deceptive and misleading conduct’ and whether it had breached its continuous disclosure obligations to shareholders.
The fallout for Downer EDI has continued into 2023, with the company’s share price taking another hit at the end of February. The shares fell more than 23 per cent after the company reported a fall in interim profit and disclosed to the market that further investigations into its ‘accounting irregularities’ had uncovered more overstated earnings.
In framing its case, Maurice Blackburn highlights Downer EDI’s record of announcements leading up to the company’s profit warning for FY23 issued on 8 December 2022.
At the time, Downer EDI informed the market that it wouldn’t achieve the FY23 guidance issued on 17 August 2022, despite only a month earlier on 3 November 2022 affirming that underlying net profit after tax and before amortisation would be up between 10 and 20 per cent compared to the previous year.
In December, Downer EDI launched an investigation into its accounting irregularities which also was accompanied by long-time CEO Grant Fenn tendering his resignation, Fenn officially left the company earlier this month.
The ongoing controversy has also claimed the scalp of Downer EDI chairman Mark Chellew, who resigned on March 3.
His resignation followed that of CFO Michael Ferguson just two days earlier as the NSW Independent Commission Against Corruption (ICAC) announced it would hold a public inquiry into actions by the group’s staff as part of a wider investigation of the conduct of employees of Inner West Council, Transport for NSW and others.
Miranda Nagy, the principal of Maurice Blackburn Lawyers, says Downer EDI had ‘shocked’ the market through the disclosure of its loss-making contract.
“It is vitally important that companies disclose to the market problems as soon as they arise and that investors can be confident that earnings forecasts are based on robust financial information, not accounting irregularities,” Nagy says.
“The market can only operate properly if investors know what they are buying. In this case Downer EDI investors have borne the brunt of what appears to be a significant accounting error, for which the company has given only limited explanation so far, notwithstanding that the chair, CEO and CFO have all recently departed the company”.
Shareholders who bought shares in Downer EDI between 12 August 2020 and 26 February 2023 will be eligible to join the Maurice Blackburn class action.
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