An investment fund has brought a federal class action suit against Bensenville-based maker of artificial sapphires, Rubicon Technology, alleging the company, already facing financial difficulty, misled the public into believing it was on better financial footing than it was, to persuade investors to buy up $100 million worth of stock issued in the spring of 2014, providing the company with an infusion of cash even as the stock’s value cratered.
Attorneys James E. Barz and Frank Richter, of the Chicago office of the firm of Robbins, Geller, Rudman & Dowd, along with attorneys Samuel H. Rudman, of Robbins Geller’s Melville, N.Y. office, and Jack G Fruchter, of Abraham, Fruchter & Twersky, of New York, filed the action on behalf of named plaintiff Firerock Global Opportunity Fund LP and other similarly situated Rubicon investors in federal court in Chicago April 30.
The two-count complaint alleges Rubicon violated the Securities Act.
The complaint asks the court to award unspecified damages to a class including all investors who purchased stock from Rubicon in a March 2014 public common stock offering. Further, the complaint asks the court to rescind that stock offering altogether.
The complaint centers on the documents issued and statements made by Rubicon in advance of the March 2014 offering.
Four years earlier, the complaint states, Rubicon was profitable, finding ready business for its products, artificially-created sapphires, which, when cut into wafers and chips, are used to make LED lights.
In 2010, Rubicon’s stock was trading for more than $30 per share, the complaint states, reflecting the company’s profitability.
However, in the next three years, the company’s revenue declined, and shares dropped to less than $5 each in February 2013.
Later that year, the company announced the development of a new product line, called “patterned sapphire substrates” or PSS, which the complaint alleges Rubicon indicated would allow the company to “create and sell pre-patterned (sapphire) wafers to LED customers.”
Later in 2013, the company reported improved financial results, “signaling a return to profitability.” By In December 2013, Rubicon filed forms with the federal Securities and Exchange Commission, including a prospectus, setting the stage for its spring 2014 stock offering.
However, the complaint alleges the documents “negligently failed to disclose material trends, events and uncertainties known to (Rubicon) management that were reasonably expected to have a material impact on the company’s income.”
The company particularly drew attention to its PSS product line, saying it believed PSS would “generate increasing revenue in 2014.”
However, the company had made those statements knowing it “had not received any PSS production orders … undermining its ability to achieve” the revenue it had estimated, the complaint said.
Further, the company failed to disclose it had been selling its products at a loss, forcing Rubicon to “write off $1.1 million worth of inventory.”
“The so-called ‘risk factors’ related to PSS and wafer development costs were false and misleading in that they represented that losses due to the high development costs were merely possible when, in fact, they had already materialized,” the complaint said.
As the market adjusted to Rubicon’s realities, following the stock sale, the company’s stock quickly lost 16 percent of its value on May 1, 2014, and another 6 percent the next day. By the end of April 2015, the stock had lost 70 percent of its value since March 2014, the complaint alleged, standing at less than $4 a share.
A jury trial has been demanded.