Eros woes mount as investors file class action suit in US

Troubles for Indian film production house Eros are increasing with a section of investors in its US-listed unit filing a class action lawsuit for securities fraud.

Investors in Eros International Plc, which is listed on the New York Stock Exchange, have alleged that the company made misleading statements or concealed information that affected its share price.

The suit, filed by law firm Lieff Cabraser Heimann & Bernstein LLP on behalf of the investors, alleged that the company’s controlling shareholders enriched themselves through related-party transactions and that the company lacked adequate internal controls. Besides, it alleged that Eros overstated the number of movies it distributed, its theatrical revenue as well as its financial results and operating metrics.

The lawsuit also said that the company didn’t prepare its financial statements as per the Generally Accepted Accounting Principles, or GAAP.

Eros co-produces, acquires and distributes Indian language films in multiple formats worldwide. It also runs online movie streaming venture Eros Now.

Shares of Eros had been hit by a major sell-off in October, triggered by a series of tweets by an anonymous person that questioned the company’s reporting norms and operating metrics.  

At the time, Eros had said that the share price volatility was a result of speculative media reports. The company couldn’t immediately be reached for comment on Wednesday.

The lawsuit cited a report by research firm Alpha Exposure which criticized Eros for what it called its aggressive accounting practices and doubted financial information reported by the company.

Shares of Eros had fallen 13 per cent to $11.17 apiece on October 30 after the Alpha report came out, the lawsuit said.

Alpha published two more reports on Eros making allegations of overstated financial information and operational metrics. Eros shares fell again.

The company’s shares closed at $9.50 apiece on the NYSE on Tuesday, down 75 per cent from their one-year high of $39.01 in August.

On the Bombay Stock Exchange, shares of group company Eros International Media Ltd closed 5 per cent higher on Wednesday at Rs 239.80. The shares have risen 18 per cent since touching a one-year low in mid-November but have still fallen nearly two-thirds from their one-year high in July.

Eros as a group also competes with 21st Century Fox, the media entertainment firm controlled by Rupert Murdoch that has its own movie production house besides owning TV network Star. Star also runs an over-the-top property HotStar, which also streams movies besides its television shows.

News Corp, another firm controlled by Murdoch, owns the parent of this news website.

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