CITIC Capital RICO Conspiracy GNC Shareholders’ Class Action

This class action is brought by minority shareholders in GNC Holdings, Inc. The complaint alleges that “a number of state-owned Chinese corporations and individuals, GNC’s Board of Directors and senior management, certain [of] GNC’s secured lenders and financial advisor” who have conspired “to enrich themselves at the expense” of other shareholders through dishonest actions that include “racketeering activities, conspiracy, fraud, breach of fiduciary duty, negligence, and conversion.”

The class for this action is all minority shareholders of GNC who owned Class A common stock between February 13, 2018 and June 23, 2020. Excluded from the class are the defendants in this action.

CITIC Capital Holdings Ltd. (formerly the China International Trust Investment Corporation) heads the scheme, the complaint says. It controls Harbin Pharmaceutical Group Holding Co. Ltd. and Harbin Pharmaceutical Group Co. Ltd. (called in the complaint Hayao Holding and Hayao, the first being the primary shareholder of GNC). The other defendants include Evercore, Inc., which advised GNC on debt restructuring and bankruptcy, a list of individuals, and John Doe individuals and companies.

GNC, a worldwide health and wellness company listed on the NYSE, made its bankruptcy filing on June 23, 2020. Its Board, the complaint says, owns “near-zero GNC stock”, which has lost nearly all of its value. In 2013, it took on almost $1 billion in high-interest debt to buy back shares. The complaint alleges, “The interest payment has depleted the profit from the business operations.

According to the complaint, “Every year the Board has approved [an] exorbitant compensation package to the directors and the senior management that is vastly detached from GNC’s business performance. … In the meantime, Defendant GMC Management have enjoyed lavish perks, e.g., private jet, while letting the corporate cost run rampant.

Under this management, the complaint says, the complaint “has a long history of regulatory actions and lawsuits against it and its predecessors,” including a group of class actions against it for fake discount sales.

The complaint claims “GNC has extorted the franchisee store owners to purchase exclusively through its wholesale platform at a price higher than retail” and threatened to revoke their franchise licenses “unless they stopped selling non-GNC products” and “entered into lease[s] directly with the landlord [] against the prior agreement.”

The complaint also alleges “numerous incidents” where GNC “stopped paying contractor[s] and vendors and threatened to revoke the agreements.”

Although a number of potential buyers have been interested in the company, with offers of around $4 billion, the complaint says, “GNC Board and Management’s response was GNC is not for sale.”

The complaint, linked below, contains further details of the complex alleged scheme. Counts include violations of the federal and New Jersey Racketeer Influenced and Corrupt Organizations (RICO) Acts.

Article Type: Lawsuit
Topic: Investments
Tags: Fraud, Investment Losses, Investments, RICO laws