Gainey McKenna & Egleston Announces A Class Action Lawsuit Has Been Filed Against Applied Digital Corporation (APLD)

NEW YORK, Aug. 14, 2023 (GLOBE NEWSWIRE) — Gainey McKenna & Egleston announces that a securities class action lawsuit has been filed in the United States District Court for the Northern District of Texas on behalf of all persons or entities who purchased the securities of Applied Digital Corporation (“APLD” or the “Company”) (Nasdaq: APLD) between April 13, 2022 and July 26, 2023, both dates inclusive (the “Class Period”).

Applied Digital, originally known as Applied Blockchain, designs, develops, and operates datacenters in North America, and provides artificial intelligence (“AI”) cloud services, computing datacenter hosting, and crypto datacenter hosting services.

In April 2022, Applied Digital conducted its initial public offering (“IPO”), issuing 8 million shares of common stock priced at $5.00 per share for a total of approximately $40 million in proceeds. The primary underwriter of the IPO was B. Riley Securities, Inc. (“B. Riley Securities”), an investment bank and subsidiary of the diversified financial services platform B. Riley Financial, Inc. (“B. Riley Financial”).1 On April 13, 2022, pursuant to the offering documents issued in connection with the IPO (the “Offering Documents”), Applied Digital’s securities began trading on the Nasdaq Global Select Market (“NASDAQ”).

Throughout the Class Period, the Complaint alleges that the Defendants made materially false and misleading statements regarding the Company’s business, operations, and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) Applied Digital had overstated the profitability of its datacenter hosting business and its ability to successfully transition into a low-cost AI Cloud services provider; (ii) Applied Digital’s Board of Directors was not independent within the meaning of NASDAQ listing rules; (iii) accordingly, Applied Digital had overstated the efficacy of its business model and failed to maintain proper corporate governance standards; (iv) the foregoing, once revealed, was likely to subject the Company to significant financial and/or reputational harm; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times.

In July 2023, the Complaint alleges that market analysts began analyzing Applied Digital’s business model as well as its connections with B. Riley. First, on July 6, 2023, the Complaint alleges that Wolfpack Research issued a report that raised questions about the viability of the Company’s business model, stating, for example, that the Company “pumped up its stock in May by claiming to pivot from a floundering business hosting bitcoin miners, to becoming a low-cost AI Cloud service provider,” and “[t]he explosion of interest in AI after the emergence of Chat GPT has predictably attracted the worst promoters []to peddle fake AI wares to credulous investors, and our analysis indicates that APLD is one of these grifters because it is not an AI company[.]” The Complaint also alleges that a Bear Cave report detailed Applied Digital’s corporate history and claimed that “Applied Digital relies on puffery over substance and is a perfect case study on our market’s bizarre underbelly of reverse mergers, microcaps, and shell companies”

Following publication of the Wolfpack and Bear Cave reports, Applied Digital’s stock price fell $1.27 per share, or 14.16%, to close at $7.70 per share on July 6, 2023.

Finally, on July 26, 2023, the Complaint alleges that Friendly Bear issued a report that expressed the view that B. Riley “is controlling managerial decisions at Applied Digital to the detriment of Applied Digital shareholders”; that Applied Digital’s board does not “meet[] the independence requirements under Nasdaq rules and . . . is essentially controlled by B. Riley.” The Complaint further alleges that the Friendly Bear report also claimed that clear conflicts of interest undermined the Company’s purported investigation into sexual harassment claims made against Defendant Cummins the previous month, noting that the manner in which the claims were summarily dismissed by Applied Digital’s Audit Committee could subject Applied Digital to “significant legal blowback.”

Following publication of the Friendly Bear Report, Applied Digital’s stock price fell $0.60 per share, or 6%, over the following two trading sessions, to close at $9.40 per share on July 28, 2023.

As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages.

Investors who purchased or otherwise acquired shares of Applied Digital Corporation (APLD) should contact the Firm prior to the October 11, 2023 lead plaintiff motion deadline. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation.  If you wish to discuss your rights or interests regarding this class action, please contact Thomas J. McKenna, Esq. or Gregory M. Egleston, Esq. of Gainey McKenna & Egleston at (212) 983-1300, or via e-mail at tjmckenna@gme-law.com or gegleston@gme-law.com.

Please visit our website at http://www.gme-law.com for more information about the firm.