Axiom Holdings faces shareholder class action suit over failed merger

Axiom Holdings faces shareholder class action suit over failed merger


The multifaceted Hong Kong-based company Axiom Holdings and its chief executive officer were recently named as defendants in a securities class action lawsuit that alleged that the company did not have proper control over the processes behind a planned – and eventually failed – merger.

Specifically, Axiom Holdings was supposed to enter into a share exchange agreement reverse merger with CJC Hong Kong Limited, which would have made CJC a wholly owned subsidiary of Axiom Holdings. However, the deal did not go through because, the suit alleges, Axiom Holdings did not have proper control over the process. This, in turn, made the Axiom move to issue shares in its own business to CJC stockholders improper, and rendered all statements made by the defendants materially false or misleading throughout the class period.

The shareholder class action suit was filed in the U.S. District Court for the Southern District of New York and has a class period from Oct. 14, 2016, to June 19, 2017. In addition to Axiom Holdings itself, the suit also names CEO Curtis Riley as a defendant.

A failed merger is central to the Axiom Holdings securities class action suit.A failed merger is central to the Axiom Holdings securities class action suit.

A closer look
These issues arose when the U.S. Securities and Exchange Commission issued a subpoena related to what Riley called “discrepancies” in the merger process, the company announced in mid-June. Specifically, these included the transfer of Axiom Holdings stock to major CJC shareholders – current director Hu Deng Yang, who began his work with the company in November 2016, and former CEO Yang Chau – before the deal was supposed to be completed in late December of last year.

Yang and Chau reportedly received some 200 million shares of Axiom Holdings on Dec. 21, but were still shareholders in CJC at the time as well.

“These discrepancies are being examined,” Riley said in addressing the issue. “The Company will further announce the developments and take remedial measures.”

The next day, the company revealed that the planned CJC merger was never completed.

The stock price changes
Around the start of the class period, stock in Axiom Holdings was trading at a little more than $2 per share, but after the CJC merger announcement, that number went up slowly but appreciably, hitting a high of $2.47 in early December. However, it crashed shortly thereafter – hitting a low of just $0.48 per share on Dec. 9 – and only got back to anything resembling the $2 range in late January.

For a few more months, the stock mostly hovered between $1.40 and $1.50 per share, but started to fall again in early June. At the close of the class period, stock in Axiom traded at just $0.91 per share, and quickly fell on news of the SEC subpoena. Indeed, the price fell from $1.16 to just $0.71 in three days of trading. The price hasn’t recovered since, and now trades at just $0.65 per share.

For more information on this case or other class action litigations, please contact Sam Wankel, Senior Vice President, Research, Battea Global Litigation Research, Inc., at 203-987-4949 or info@battea.com.