a2 Milk (ASX:A2M) share price hit by class action news

The A2 Milk Company Ltd (ASX:A2M) share price is under pressure again on Monday. Here’s why its shares are being sold…

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The A2 Milk Company Ltd (ASX: A2M) share price has come under pressure again on Monday.

At the time of writing, the fresh milk and infant formula company’s shares are down 0.5% to $5.51.

This means the a2 Milk share price is now down 72% from its 52-week high of $20.05.

Why is the a2 Milk share price under pressure today?

This morning a2 Milk announced that it was aware of media reports revealing that a potential class action against the company is being investigated by Slater & Gordon Limited (ASX: SGH).

As things stand, the company advised that it is not aware of any legal proceedings having been filed. Furthermore, the company believes that it has complied with all applicable disclosure obligations and denies any claim to the contrary.

It will respond further if and when any legal proceedings are commenced.

What is happening?

According to the report in the AFR, Slater and Gordon is investigating a possible class action claim on behalf of investors who bought shares over a nine-month period between 19 August 2020 and 7 May 7 2021.

During this time, the infant formula company posted four downgrades, leading to a bitterly disappointing 62% decline in its share price. Also occurring during these dates and before the downgrades began were a series of insider sales by executives comprising millions of dollars’ worth of a2 Milk shares.

The report reveals that Slater and Gordon alleges a2 Milk may have engaged in misleading or deceptive conduct in breach of the Corporations Act. It may also have possibly breached continuous disclosure rules.

The law firm stated: “There may be basis to allege that by no later than August 19, 2020, a2 Milk was or ought to have been aware the full-year 2021 guidance did not adequately take into account a number of factors which would impact the company’s financial performance.”

“Earlier last year, the company seemed to be talking about COVID-related impacts that have affected its business. But when there was this fourth downgrade, that started revealing information about more systemic and structural problems that seem to exist in the business, which triggered us to go back and look through not only the most recent downgrade but what’s happened over the last nine months.”“

“Our investigation is considering whether or not all of the information that’s been dripped out by the company over the last nine months was actually not in the company in August when they gave that initial full-year guidance,” it added.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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