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SPOTLESS Group (ASX: SPO) has been hit by a class action launched by Slater and Gordon (ASX: SGH) in the Federal Court against the cleaning and catering provider.
Slater and Gordon is set to act on behalf of disgruntled shareholders who is accusing Spotless of sweeping its financials under the rug.
Mathew Chuk, senior associate with Slater and Gordon, says the claim alleges that Spotless misled the market by issuing an overestimated guidance for FY16 financial performance which lacked reasonable grounds.
"In August 2015, Spotless stated that its FY16 results would materially exceed the previous financial year," Chuk said.
"This included an endorsement of market consensus expectations of FY16 net profit after tax of $161.5 million.
"But just three months later, Spotless' share price fell by approximately 50 per cent when the market reacted to the company unexpectedly pulling its FY16 guidance and issuing a profit downgrade."
Chuk said Spotless knew that it was highly unlikely to be able to achieve its FY16 guidance.
"Spotless explained its profit downgrade was based on problems with acquisition integration and underperformance, general market slowdown and expensing of previously capitalised bid costs," Chuk said.
"Our investigations have found that most of this information was available to the company months earlier.
"This class action alleges that Spotless should never have set market expectations so high in such circumstances."
In February, Spotless axed a collection of shoddy contracts which resulted in a massive $423 million write down, stripping the last dividends from already dissatisfied shareholders.
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