Shareholders Foundation, Inc.

NASDAQ: APLD Shareholder Notice: Lawsuit Alleges Securities Laws Violations by Applied Digital Corporation

A lawsuit was filed on behalf of investors in Applied Digital Corporation (NASDAQ: APLD) shares over alleged securities laws violations.


San Diego, CA -- (SBWIRE) -- 08/22/2023 -- An investor, who purchased shares of Applied Digital Corporation (NASDAQ: APLD), filed a lawsuit against Applied Digital Corporation over alleged violations of Federal Securities Laws,.

Investors who purchased shares of Applied Digital Corporation (NASDAQ: APLD) have certain options and for certain investors are short and strict deadlines running. Deadline: October 11, 2023. NASDAQ: APLD investors should contact the Shareholders Foundation at or call +1(858) 779 - 1554.

Dallas TX based Applied Digital Corporation, originally known as Applied Blockchain, designs, develops, and operates datacenters in North America. Its datacenters provide digital infrastructure solutions to the high-performance computing industry and provides artificial intelligence ("AI") cloud services, computing datacenter hosting, and crypto datacenter hosting services.

In April 2022, Applied Digital Corporation 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").
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").

The Offering Documents described several close connections between Applied Digital and B. Riley. For example, in the "conflicts of interest" section of the IPO Prospectus, Applied Digital stated that, in August 2021, the Company's Chief Executive Officer ("CEO"), Wesley Cummins ("Cummins"), sold a majority interest in a registered investment adviser controlled by Cummins to B. Riley Financial, and thereafter became President of B. Riley Asset Management. At the time of the IPO, Cummins also served as the CEO and President of B. Riley Capital Management, LLC. Further, the IPO Prospectus stated that two members of the Board, Chuck Hastings ("Hastings") and Virginia Moore ("Moore"), maintained similarly close connections to B. Riley. Specifically, at the time of the IPO, Hastings served as the CEO of B. Riley Wealth Management, Inc. and Moore was married to the CEO of B. Riley Securities.

As a company publicly traded on the NASDAQ, Applied Digital is required to comply with Listing Rule 5605(b)(2), which states that a majority of the Company's board of directors (the "Board") must be comprised of independent directors. Nasdaq Listing Rule 5606(a)(2) defines an independent director as "a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director." Notwithstanding the close ties between Applied Digital and B. Riley, the prospectus issued in connection with the IPO (the "IPO Prospectus") nonetheless assured investors that Applied Digital had "structured [its] Board composition and corporate governance in order to meet the requirements of the [NASDAQ]".

On May 15, 2023, Applied Digital Corporation announced that it was launching cloud service to "[e]mpower [a]rtificial [i]ntelligence [a]pplications". Eight days later, on May 23, 2023, Applied Digital entered into a loan and security agreement with B. Riley Commercial Capital, LLC and B. Riley Securities. The agreement, the purpose of which Applied Digital claimed was to supply "additional liquidity to fund the buildout of the Company's recently announced AI cloud platform and datacenters by the Company," provided for a term loan in the principal amount of up to $50 million, with an interest rate of 9.00% per annum, and a maturity date of May 23, 2025. However, Applied Digital repaid the total balance of the loan nearly two years ahead of its contractual maturity, a timeframe that corresponded with B. Riley's own efforts to finance its recent acquisition of the holding company Franchise Group, Inc.

In July 2023, market analysts began scrutinizing Applied Digital's business model as well as assembling the various connections between Applied Digital and B. Riley into a cogent picture.
First, on July 6, 2023, market analysts Wolfpack Research ("Wolfpack") and The Bear Cave ("Bear Cave") published short reports on Applied Digital. The Wolfpack report 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 Bear Cave report, for its part, detailed Applied Digital's problematic corporate history, alleging 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."

Finally, on July 26, 2023, The Friendly Bear published a short report on Applied Digital. The Friendly Bear report 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 Friendly Bear report also alleged 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."

Shares of Applied Digital Corporation (NASDAQ: APLD) declined from $11.07 per share on July 26, 2023, to $6.54 per share on August 15, 2023.

The plaintiff claims that between April 13, 2022 and July 26, 2023, the Defendants made false and/or misleading statements and/or failed to disclose that 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, that Applied Digital's Board of Directors was not independent within the meaning of NASDAQ listing rules, that accordingly, Applied Digital had overstated the efficacy of its business model and failed to maintain proper corporate governance standards, that the foregoing, once revealed, was likely to subject the Company to significant financial and/or reputational harm, and that as a result, the Company's public statements were materially false and misleading at all relevant times.

Those who purchased shares of Applied Digital Corporation (NASDAQ: APLD) have certain options and should contact the Shareholders Foundation.

Shareholders Foundation, Inc.
Michael Daniels
3111 Camino Del Rio North - Suite 423
92108 San Diego
Phone: +1-(858)-779-1554
Fax: +1-(858)-605-5739

About The Shareholders Foundation, Inc.
The Shareholders Foundation, Inc. is a professional portfolio monitoring and settlement claim filing service, , which does research related to shareholder issues and informs investors of securities class actions, settlements, judgments, and other legal related news to the stock/financial market. Shareholders Foundation, Inc. is in contact with a large number of shareholders and offers help, support, and assistance for every shareholder. The Shareholders Foundation, Inc. is not a law firm. Referenced cases, investigation, and/or settlements are not filed/reached and/or related to Shareholders Foundation. The information is provided as a public service. It is not intended as legal advice and should not be relied upon.