Cemtrex Inc (CETX)

[236T568]

The Amended Complaint TABLE OF CONTENTS

I. SUMMARY OF THE ACTION............................................................................................... 2
II. JURISDICTION AND VENUE.............................................................................................. 5
III. THE PARTIES........................................................................................................................ 5
A. Plaintiffs.............................................................................................................................. 5
B. Defendants........................................................................................................................... 6
C. Relevant Non-Party............................................................................................................. 9
IV. ADDITIONAL SUSBTANTIVE ALLEGATIONS............................................................... 9
A. Company Background......................................................................................................... 9
B. Arun Govil Begins to Build the House of Cards to Benefit Himself and Ducon ............. 10
C. Saagar Govil Assumes Management of the Company and Engages in an Undisclosed Paid
Promotion Scheme to Pump the Company’s Stock Price ................................................. 13
1. Cemtrex Funnels Money to Paid Promoters Through At Least One Shell Company
Controlled by A. Govil .................................................................................................. 15
2. While Overseeing the Stock Promotion, Saagar Govil Secures Stock Options for
Himself While Nearly Doubling His Salary .................................................................. 19
D. Saagar Govil Follows in His Father’s Footsteps and Misrepresents the Company’s
Purported Ownership Over an Indian Subsidiary ............................................................. 20
E. After Pumping up the Stock Price, and Because the Company is Unable to Secure
Traditional Financing, Cemtrex Uses Its Own Stock as Currency to Quickly Expand
Operations.......................................................................................................................... 28
1. Cemtrex Is Reliant on Using Its Common Stock as Currency and Related Party Debt
Financing From Ducon Because It is Highly Leveraged, Unable to Secure Financing
Through Traditional Means ........................................................................................... 30
F. Defendants and Other Company Insiders Engage in Unreported Securities Transactions to
Avoid Causing a Stock Decline That Would Prevent Cemtrex’s Acquisitions................. 32
1. Arun Govil Fails to Timely Report His or Ducon’s Insider Holdings and
Transactions................................................................................................................... 33
2. Saagar Govil Fails to Timely Report His Cemtrex Holdings and Transactions............ 41
3. Renato Dela Rama Fails to Timely Report his Cemtrex Holdings and Transactions.... 47
4. Other Company Directors Fail to Timely Report their Cemtrex Holdings ................... 51
G. Defendants Tout the Company’s EMS Automotive Segment Despite its Ongoing
Troubles to Bolster Cemtrex’s Upcoming Rights Offering .............................................. 58
H. The Company Pays Peanuts to a Do-Nothing Audit Firm to Look the Other Way While
the Individual Defendants Conceal Facts Related to Insiders’ Reporting Compliance and
Actively Misrepresent Facts Related to the Company’s Purported Indian Subsidiary and
German Automotive Business .......................................................................................... 59
Case 2:17-cv-01067-JFB-AYS Document 46 Filed 05/07/18 Page 2 of 125 PageID #: 569
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V. DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS ............ 61
A. Cemtrex Materially Misrepresents Its Ownership Interest In An Indian Subsidiary To
Make The Company Appear Legitimate........................................................................... 61
B. Defendants Materially Misrepresent Cemtrex’s Insiders’ Compliance With The Federal
Securities Laws And The Effectiveness Of The Company’s Disclosure Controls........... 62
1. False and Misleading Statements Regarding Cemtrex Insiders’ Compliance with
Section 16(a).................................................................................................................. 62
2. False and Misleading Statements about the Effectiveness of the Company’s Disclosure
Controls.......................................................................................................................... 65
3. False and Misleading Statements About the Company’s Insider Holdings................... 76
C. Defendant S. Govil and the Company Materially Misrepresent the Prospects of the
Company’s EMS Segment and its Automotive Division.................................................. 77
VI. THE TRUTH IS REVEALED OVER A SERIES OF PARTIAL DISCLOSURES WHILE
THE COMPANY DOUBLES DOWN ON ITS MISINFORMATION AND CONTINUES
MAKING FALSE STATEMENTS...................................................................................... 79
A. Two Independent Investors/Financial Authors Bring Defendants’ Misrepresentations To
Light.................................................................................................................................. 79
B. The Company Enters Damage Control Mode And Continues To Spread Misinformation
About Its SEC Reporting While Omitting Any Reference To Its Plan To Close One Of Its
German Plants................................................................................................................... 80
C. ROB Cemtrex Informs Its Employees And The German Works Council Of Its Intention
To Close Its Recently Acquired Paderborn, Germany Facility......................................... 83
D. German Language Media Begins To Report Cemtrex’s Plans To Shutter The Paderborn,
Germany Facility............................................................................................................... 84
E. Company Insiders Seek To Correct Their Past Securities Law Violations By Belatedly
Filing Form 4s That Evidence A Pattern Of Sales And Further Corroborate The
Disclosure Articles ............................................................................................................ 85
F. Unemon1 Publishes A New Article Amplifying News Of Cemtrex’s Planned Closure Of
Its Paderborn, Germany Facility........................................................................................ 86
VII. POST-CLASS PERIOD EVENTS ....................................................................................... 86
VIII.ADDITIONAL SCIENTER ALLEGATIONS..................................................................... 93
A. The Individual Defendants’ Knowledge and/or Recklessness.......................................... 94
1. The Individual Defendants’ Actual Knowledge of Their Own Undisclosed Insider
Transactions in Company Stock .................................................................................... 94
2. A. Govil’s Actual Knowledge of Material Misstatements Regarding Cemtrex India is
Presumed Where He Maintained Majority Ownership of that Entity............................ 95
3. The Individual Defendants’ Actual Knowledge that their Statements About the
Automotive Segment of Periscope Were False and Misleading When Made ............... 95
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4. Cemtrex’s Disclosure Control Deficiency Evidences a “Tone at the Top” that
Disregarded Full and Candid Disclosure ....................................................................... 96
B. The Individual Defendants’ Motive to Commit the Alleged Fraud .................................. 97
1. The Individual Defendants’ Use of Common Stock as Currency to Fund Acquisitions
and Grow the Company Provided Motive to Commit Fraud......................................... 97
2. The Individual Defendants Oversaw Multiple Stock Buybacks in an Effort to Inflate
Cemtrex’s Stock Price.................................................................................................. 100
3. Defendant Arun Govil was Motivated to Commit Fraud so as to Clandestinely Sell Off
Significant Holdings Through Ducon and Cash In on his Cemtrex Investment.......... 101
4. Defendant Dela Rama was Motivated to Commit Fraud So as to Cash in his Cemtrex
Equity – his Primary Compensation from the Company............................................. 105
5. The Individual Defendants Were Motivated to Conceal the Truth About the Closing of
the Paderborn Facility and the Company’s Automotive EMS Business in Order to
Conduct the Rights Offering........................................................................................ 109
IX. LOSS CAUSATION........................................................................................................... 110
X. PRESUMPTION OF RELIANCE...................................................................................... 112
XI. INAPPLICABILITY OF THE STATUTORY SAFE HARBOR AND BESPEAKS
CAUTION DOCTRINE ..................................................................................................... 113
XII. CLASS ACTION ALLEGATIONS ................................................................................... 114
XIII.COUNTS............................................................................................................................. 115
XIV. PRAYER FOR RELIEF ............................................................................................. 119
XV. JURY DEMAND................................................................................................................ 119