TransDigm’s growth scheme was to price-gouge the US government, claims the complaint for this class action, by buying products for which it would be the sole supplier, then jacking up their prices. The complaint alleges that it hid its cost structure and even its identity from the Pentagon, in violation of the rules for government contracts. The concealment of this scheme from the public, the complaint says, is a violation of the Securities Exchange Act of 1934.
The class for this action is all persons or entities who acquired TransDigm securities between May 10, 2016 and January 19, 2017 and were damaged thereby.
TransDigm makes aircraft components, with the US government as its largest customer. How has it gotten away with its schemes? The complaint claims that it acquires “high-margin, but relatively low-priced” products and gives several examples, such as a vibration panel, originally sold at $67.33, but sold by TransDigm for $271.00. Because the parts are still only a small part of the overall price of an aircraft, the complaint says, it avoids scrutiny.
The complaint claims that it has created a web of other entities to further confuse the issue, such as shell distributors who add a layer between it and the government. While companies who bid on government contracts are supposed to register with a federal database and disclose their parent companies, the complaint claims that at least a dozen of the companys’s subsidiaries have not disclosed their connection to TransDigm. According to the complaint, this makes it more difficult for the government to track the pattern of large price increases to TransDigm.
No hint of these activities appeared in TransDigm’s public statements or filings during the class period. The company attributed sales growth to such things as “the strength of [its] proprietary products and continued productivity efforts” or “a continued focus on intrinsic value creation.”
The complaint quotes its 2016 annual report as saying, “We compete on the basis of engineering, manufacturing and marketing high quality products, which we believe meet or exceed the performance and maintenance requirements of our customers, consistent and timely delivery, and superior customer service and support.”
On January 20, 2017, however, Citron Research published an article accusing the company of price-gouging the government and exposing some of its schemes, such as the shell distributors. It claimed that TransDigm’s seeming growth was driven by too many acquisitions and a “sky-high debt load.”
After this, the company’s stock price fell by nearly 10%. But there was more negative news to come, in a second article in March that by Citron that made even more disclosures. After this, as the company’s stock prices continued to fall, Congressman Ro Khanna and Senator Elizabeth Warren separately requested that the government investigate the company.
Article Type: LawsuitTopic: Securities
Most Recent Case Event
TransDigm Inflated Worth Through Price-Gouging the Government Complaint
August 10, 2017
TransDigm’s profitability scheme was to price-gouge the US government, claims the complaint for this class action, in the same way as some pharmaceutical companies have tried to make big gains by buying the rights to drugs for which there are few alternatives and then jacking up the price. The complaint alleges that it has increased prices unreasonably on products for which it is the sole supplier and hidden its cost structure and even its identity from Pentagon, in violation of the rules for government contracts. The concealment of this scheme from the public, the complaint says, is a violation of the Securities Exchange Act of 1934.
transdigm_sec_compl.pdfCase Event History
TransDigm Inflated Worth Through Price-Gouging the Government Complaint
August 10, 2017
TransDigm’s profitability scheme was to price-gouge the US government, claims the complaint for this class action, in the same way as some pharmaceutical companies have tried to make big gains by buying the rights to drugs for which there are few alternatives and then jacking up the price. The complaint alleges that it has increased prices unreasonably on products for which it is the sole supplier and hidden its cost structure and even its identity from Pentagon, in violation of the rules for government contracts. The concealment of this scheme from the public, the complaint says, is a violation of the Securities Exchange Act of 1934.
transdigm_sec_compl.pdf