HD Supply Holdings, Inc.

Case Details

Class Period: November 9, 2016 - June 5, 2017
Date Filed: July 11, 2017
Case Number: 1:17-cv-2587
Jurisdiction: Northern District of Georgia
icon-casetype Case Type: Securities Case

Case Summary

The Complaint brought forth claims for violations of the Securities Exchange Act of 1934 against HD Supply Holdings, Inc., and certain of its senior executives. The Complaint alleges that Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased or otherwise acquired HD Supply common stock during the class period.

HD Supply is one of the largest commercial distributors in North America, providing products and services to approximately 500,000 customers across a variety of industrial sectors. The Company’s business is concentrated in three segments, with the most important being its Facilities Management (“FM”) division.

Specifically, the Complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose that: (1) HD Supply’s full year 2017 growth and operational leverage targets were unattainable; (2) the operational recovery of its FM supply chain was continuously experiencing significant failures after relocating its headquarters cross-country and after laying off nearly all of its supply chain employees while Defendants maintained to investors that the problems had been rectified; and (3) that the Company’s CEO enraged in insider trading. Indeed, by November 2016, former high-ranking Company employees confirmed that it was well known inside HD Supply and by Defendants that the supply chain would need a massive overhaul to meet demand. The full extent of the fraud was not revealed until June 6, 2017, when the Company issued a press release admitting that, contrary to Defendants’ prior representations, FM’s supply chain issues had still not been fixed. On that day, the Company disclosed that: (1) the problems affecting the FM supply chain were still materially impacting the Company’s business, such that FM’s Q1 2017 adjusted EBITDA had actually declined a staggering 13% compared to the same quarter of the prior year; (2) the FM supply chain recovery efforts would extend through the rest of 2017, and even into 2018; and (3) as a result of the ongoing supply chain problems, the Company would be forced to spend substantial additional sums on the recovery efforts, which would materially impact Adjusted EBITDA in future periods. Analysts were shocked by these admissions, slashing the Company’s ratings and excoriating management for their prior misrepresentations. As a result of Defendants’ disclosures, HD Supply’s share price crashed, and fell more than 20% in just two trading days in response, wiping out a total of $1.7 billion in market capitalization.

On September 11, 2017, the Court appointed the City Pension Fund for Firefighters & Police Officers in the City of Miami Beach, Pembroke Pines Pension Fund for Firefighters and Police Officers, and Hollywood Police Officers’ Retirement System as Lead Plaintiffs, and Saxena White as Lead Counsel.

Lead Plaintiffs filed an amended complaint on November 16, 2017, and Defendants moved to dismiss the Amended Complaint on December 21, 2017. Lead Plaintiffs filed their opposition on February 1, 2018 and Defendants filed their reply on February 22, 2019. On September 19, 2018, the Court denied in large part Defendants’ motion to dismiss. The Court rejected the Company’s arguments that investor claims were generalized allegations and instead, found that Plaintiffs provided specific examples of misleading statements. On November 5, 2018, Defendants filed their answer to the Amended Complaint.

Lead Plaintiffs filed a motion for class certification on March 1, 2019, and Defendants filed their opposition to Lead Plaintiffs’ motion for class certification on June 17, 2019. Lead Plaintiffs filed their reply on August 2, 2019.

After a number of mediation sessions, the parties came to an agreement in principle to settle and release all claims against HD Supply in exchange for a $50,000,000 settlement for the benefit of the class. On January 31, 2020, Lead Plaintiffs filed a motion for preliminary approval of class action settlement, certification of the settlement class, and approval of notice to the settlement class. On February 21, 2020, the Court certified the class for settlement purposes granted preliminary approval of the settlement between the parties. Then, on July 21, 2020, the Court entered final judgment approving the settlement finding it to be fair, adequate and reasonable in all respects.