GoPro Inc (NASDAQ:GPRO) is set to face a legal battle that could prove both costly and disruptive to its operations. Law firm Khang & Khang has announced a securities class action suit against the company, alleging GoPro deceived investors into losses that could have been avoided if the company was forthright.
In a press release, Khang & Khang is urging GoPro investors who lost more than $100,000 through investment in GoPro stock, especially in connection with Karma drone recall, to contact the firm. The suit seeks to represent investors who held GoPro shares between Sept. 19, 2016 and Nov. 4, 2016.
Withholding of adverse material facts
The suit alleges that GoPro fed its shareholders false and misleading statements concerning the potential of its Karma drone. For instance, the law firm says GoPro overstated the demand for the drone, causing investors to believe it could be a game-changer for the company’s financials. Additionally, the suit accuses GoPro of failing to disclose that Karma had a problem that caused it to lose power and drop out of the sky.
When the problem of the drone losing power was discovered, GoPro was forced to recall the product and halt its sales until the problem was fixed. GoPro said it was recalling 2,500 Karma drones that had been sold by the time the problem was detected. On top of a full refund, GoPro said it was giving away a Hero5 Black camera to customers who returned their drones as part of the recall.
The recall, the refund and the camera giveaway have not only denied GoPro revenue that it was expecting from drone sales, but also introduced new costs for the company.
Shares of GoPro plunged following the Karma fallout, causing losses to investors. Besides, Khang & Khang says GoPro’s downbeat 3Q16 earnings further put pressure on the stock, resulting in losses for shareholders. The stock is down more than 50% since the beginning of 2016.