Sunday, May 20, 2018

Investor Sues BAH Management for Fraud in Carlyle Buyout

Military reported:

An investor, who sold or exchanged BAH securities in connection with the sale of Booz Allen Hamilton Holding Corporation (NYSE:BAH)’s Government Division to The Carlyle Group in 2008, filed a lawsuit in the U.S. District Court for the Southern District of New York against Booz Allen Hamilton and certain former BAH executives over alleged violations of Federal Securities Laws.

More specifically, the plaintiff claims that defendants engaged in a fraudulent plan to sell the Government Division to the Carlyle Group at a significant discount.

The plaintiff says that to implement this scheme, Defendants made false and misleading statements to Booz Allen Hamilton Holding Corporation (NYSE:BAH) shareholders about the sales process and the value of the Government Division, many of which were included in an Information Circular distributed to Booz Allen Hamilton Holding Corporation (NYSE:BAH) shareholders on May 22, 2008. Defendants intended to deceive Booz Allen Hamilton Holding Corporation (NYSE:BAH)’s shareholders so that they would vote to tender their stock at $763 per share, far below its actual value.

The sale to the Carlyle Group closed on July 31, 2008. Nearly two years later, on June 21, 2010, the Carlyle Group published a Form S-1 filing in connection with its planned initial public offering (“IPO”) of the Government Division, which disclosed new information demonstrating that certain of the statements contained in the Information Circular were false and misleading, that Booz Allen Hamilton Holding Corporation (NYSE:BAH) shareholders received consideration for their shares that Defendants knew was insufficient, and that Defendants personally benefited from the sale at the expense of Booz Allen Hamilton Holding Corporation (NYSE:BAH)’s shareholders.
Management partners with its new private equity underwriter (PEU) owners.  It took Carlyle's flipping of BAH for an investor to see inconsistencies between the go private solicitation and subsequent IPO documents

While The Carlyle Group is not the subject of the lawsuit it used a puffery defense in one investor suit.  Carlyle's recent earnings call produced the following statement:

Carlyle assumes no obligation to update any forward-looking statements at any time.
Once it is said it is done.  Carlyle is not responsible for what it says or does.  Should the BAH investor suit proceed management wishing to be PEU sponsored should pay attention.   Your words may come back to haunt you.  Unlike Carlyle management in publicly traded companies have an obligation to speak truth, not fraud.