(CN) – A federal judge in Manhattan largely dismissed a shareholder class action accusing Britannia Bulk Holdings of deceiving investors in statements about its initial public offering.
U.S. District Judge Denise Cote tossed the fraud claims against all defendants, which included Britannia, its CEO and CFO, and four underwriters. The only surviving claim is a “negligent conduct” charge against the two executives.
The company’s June 2008 IPO was a financial success for the company and its underwriters. They raised $125 million by selling more than 8.3 million shares of common stock to investors for $15 per share.
By late October, the stock had dropped more than 98 percent to $0.27 per share after the company became insolvent.
Britannia Bulk is an international provider of dry-bulk shipping and logistics services, mainly in and out of the Baltic region.
Its profits soared to “historic levels” in early 2008 as demand for Russian coal and other raw materials increased the demand for dry-bulk transportation in the Baltic and Northern Europe.
It earned $300 million in the first three months of 2008, compared with $60 million over the same time period a year earlier.
The class claimed that the registration statement and prospectus contained misstatements and omissions, mostly surrounding its use of forward freight agreements (FFA). FFAs are contracts traded on the Baltic exchange in which shippers and ship owners hedge against the volatility of the ocean market. Parties use them to bet on the price of a particular freight-route on a particular day.
The lawsuit accused Britannia of failing to disclose that it used FFAs to guard against increases and not merely decreases, effectively putting a ceiling on potential gains.
Britannia was also accused of failing to enter into proper fixed-price contracts at a time when crude oil and bunker fuels were experiencing extreme fluctuation, and that it “engaged in speculative trading in FFAs … to ‘play the market.'”
The class maintained that the alleged “false and misleading” information was of considerable relevance to investors evaluating Britannia’s business.
But Judge Cote ruled that the documents provided to shareholders “contain an abundance of cautionary language about Britannia’s use of FFAs that Plaintiff simply ignores.”
Also, the company’s shareholder update was written in “straightforward” and “plain language” and was “entirely consistent with the Company’s intervening SEC filings after the IPO,” Cote wrote.
She ruled that the plaintiff’s claim “does not withstand meaningful scrutiny.”