A class action lawsuit was filed against CAE Inc. (CAE) by Levi & Korsinsky on July 16, 2024. The plaintiffs (shareholders) alleged that they bought CAE stock at artificially inflated prices between February 11, 2022 and May 21, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought CAE stock during that period can click here to learn about joining the lawsuit.
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CAE is a technology company that provides integrated training solutions for the defense and security markets, pilots, cabin crew, and airlines.
CAE’s Misleading Claims
According to the lawsuit, CAE and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the impact of several long-term fixed-price contracts on the company’s Defense segment from SEC filings and related material.
For instance, in a press release dated November 10, 2022, CAE mentioned that despite the short-term headwinds in the Defense segment, management remains highly optimistic about the segment’s long-term growth prospects.
Furthermore, in a press release dated May 31, 2023, the company said that it is determined to enhance its execution and expects continued improvement in the Defense segment’s performance.
To summarize, CAE constantly maintained throughout the Class Period that it is focused on driving better performance in the Defense segment. However, it failed to properly disclose the headwinds that could have a far-reaching impact on the segment.
Plaintiffs’ Arguments
The plaintiffs maintain that CAE and the Defendants deceived investors by lying and withholding important information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the impact of the fixed-rate contracts on the Defense segment.
The information became clear in a series of events between August 10, 2022 and May 21, 2024. On November 14, 2023, the company issued a press release stating that it planned to retire legacy fixed-price contracts in the Defense segment. The company explained that this move intended to mitigate the cost pressures from continued high inflation.
On February 14, 2024, CAE released its Q3 FY24 results. The company mentioned that it is planning to undertake accelerated retirement of the legacy contracts in the Defense segment, which were entered into the pre-COVID period. The company added that these contracts were severely impacted by economic headwinds.
Accordingly, on May 21, 2024, CAE noted in a press release that it had incurred millions of dollars in non-cash impairment of the Defense business’ goodwill, unfavorable Defense contract profit adjustments, and impairment of related technology and other non-financial assets that were associated with the legacy contracts.
Overall, CAE failed to appropriately inform shareholders about the impending potential losses from the fixed-price legacy contracts in the Defense segment. As a result, CAE shares have lost 35.3% of their value in the last three years.
