CIVIL COVER SHEET

Transcription

CIVIL COVER SHEET

Case 2:16-cv-02061-PD Document 1 Filed 04/29/16 Page 1 of 19
CIVIL COVER SHEET
JS 44 (Rev 12fl 2)
The JS 44 civil cover sheet and the 1!1fonna11on contained herein _n~1ther replace nor supplcr_nent the Iii.mg and service of p!cadm~s or other papers as required by law, except as
provided by local rules of court. This form, approved by the Jud1c1al Conference of the United States m September 1974, 1s required for the use of the Clerk of Court for the
purpose of initiating the civil docket sheet . (SEE INSTRUCTIONS ON .VEXT PAGE OF TIIIS f'ORMJ
f
fv~ually and on Behalf of all Others Similarly Situated
cllH~Y~if~AD ANONIMA. coMERcrAL INMOBIUARIA,
FINANCIERA Y AGROPECUARIA, ALEJANDRO GUSTAVO
ELSZTAIN. EDUARDO SERGIO ELSZTAIN, et al
County ofResidenee of First Listed Defendant
(IN US PLAINTIFF CASES ONL YJ
(b) County of Residence of First Listed Plaintiff
c.~sr:s,
NOT :
IN LANO CONOEMNATION CASES. USE THE LOCATION OF
THE TRACT OF LAND INVOI. VEO
Attorneys
II. BASIS OF JURISDICTION (Plu«
u11 -X' 111011t! Bt1.T011t.)
f/f 1.:11ow11)
III. CITIZENSHIP OF PRINCIPAL
( fill' l)iwrsi(l"Case.<011/y}
wl
n
1
U.S. Govemmcnl
Plaintiff
)II 3 Federal Qucsti-On
U S Govcmmcnl
Dcfondant
n
(U.S.
.i
C'I
0
0 130 Miller Act
CJ 140 Negotiable lnstnnm.'tlt
0 150 Rs-covery of Overpayment 0
& Enforcement of Judgment
0
0 15 1 M,·,ltcarc Ael
0 I 52 Recovery of (),:faulted
0
CJ
0
Student Loans
(Excludes Veterans)
153 Recovery of Overpayment
of Veteran·, BoncliL<
160 Stockholders· Suits
190 01hcr Contract
195 Con1ract Product Liab1hty
196 Franchise
0
0
0
CJ
0
CJ
I
REAL PROPERTY
0 210 I.and Condemnation
0 120 Foreclosure
CJ 230 Rent Lease & EJcclmcnt
0 240 Torts lo Land
CJ 145 Tort Prod uce L1ahili1y
C'I 290 A.I Ocher Real Property
0
0
0
0
CJ
Cl
0
V. ORIGIN (Pluce<111
')fl. I
PERSONAi. INJURY
310 Airplane
3 15 Airplane Product
Louh,hty
'20 Assaull. L1hcl &
S lander
3 30 Federal Employers'
Liabthly
340Marinc
345 Manne Produce
Liab1li1y
350 Motor Vehicle
355 Motor Vohrcle
Product L1ah1li1y
360 Oth<:r Pcr,;onal
Inj ury
362 Personal Injury •
Medical Malnractiec
CIVIL RIGHTS
440 Ocher C1v1l Rights
441 Voting
442 Employment
443 llousmlll
Acconunodalions
445 Amer. w/Oisabilities •
Employment
446 Amer. w/l)isabilities •
0 1her
44R Educalion
I
n
I
Incorporated 11r Principul Place
of Business In This Stale
n
4
DEF
n 4
Cittzcn of Another State
n
1
n
2
lncorpora1cd and Principal Place
of Business In Another State
n
5
n
Citizen or Subject of n
Forcrnn Countrv
ii 3
r,
3
Foreign Na1ion
r,
6
l'.'I 6
PTF
5
FORFll'.ITURE/PENALTY
PERSONAL INJURY
0 365 Personal lnJury •
Produ<.:t Liabtlily
0 367 Hcahh Carel
Phannaceuucal
Personal lnJury
Produc t L1ab1hty
0 368 Asbestos Per..onal
Injury Product
Li3bihty
PERSONAL PROPERTY
0 3 70 Other Fraud
0 371 Tru1h m Lcndmg
0 )RO Olher Personal
Property Damage
0 385 Propcny Dan,age
Product L13bility
PRISONER PETmONS
H•beas Corpus:
0 463 Alien Detainee
0 510 Motions co Vacate
Sentence
:J 530 General
0 535 Oealh Penally
Othu:
CJ 540 Mandamus & Olher
0 550 Civil Rights
0 555 Prison Cond ition
0 560 Civil Ds'taincc •
Conditions of
Confinement
0 625 Dn,g Related Se17.urc
of Property 2 1 use 88 I
0 690 Olhcr
OTHER STATUTES
BANKRUPTCY
0 422 Appeal 28 USC 158
a
0 423 Wi1hdrawal
0
0
28 USC 157
Cl
PROv•~Tv ~usffTS
O l!20 Copyrights
O l!JO Pa lenl
0 840 Trademark
0
0
CJ
0
0
0
I.ABOR
710 Fair Labor Standards
Acl
710 LaboriManagcmenl
Relations
740 Railway Labor Act
75 l Family and Medical
Leave Acl
790 Other Labor Litigation
791 Employee Rct1rcmcn1
Income Secunty Acl
S: 11 ·•AL""":, INI 1·y
0 861 HIA ( l 395ff)
0 862 Black Lung (923)
0 863 DIWCJDIWW (405(g))
CJ 864 SSID Title XVI
0 865 RSI (405(g))
0
0
0
CJ
0
)IJ
0
CJ
0
0
0
FEDERAL TAX SUITS
0 870 Taxes (U.S. Plam11ff
or Defendant)
0 &71 IRS-Thi rd Party
16 use 760'l
0
CJ
I
375 False C lainL~ Acl
400 S eate Rcapponionmcnl
410 Antitrust
430 Banb and Banking
450 Commerce
460 Dt:portal1on
470 Racketeer lnflucncs-d and
Conupt Orgamzat,ons
480 Consumer Crcdil
490 Cable/Sat T V
850 Sccuri1ics/Commodi1icsl
Exchange
890 Ocher Sta tutory Ac tions
891 Agricuhural Acl~
893 Environmcl\lal Mailers
895 Freedom of lnfonnation
Act
&96 Arbitration
899 Administrative Procedure
Ace/Review or Appeal of
Agency Decisio n
950 Consl1tul1onality of
Slalc Statutes
IMMIGRAT ION
0 462 Naturalization Application
0 465 Other Immigration
Actions
"X"ill01w811x On/y)
O 2 Removed from
Sta le Court
Original
Proceeding
DEF
n
TORTS
:, l 10 Insurance
0 120 Mar nc
0
PTf
Citizen of This State
- 111011eBo,0111~1
CONTRACT
0
Pu11,1~
O,vcrsity
(l11,h,u1,• Ci1i':,:1« hi1rnf Plfrtl~S III Item Ill)
JV. NATURE OF SUIT tPluce111, ·x
I
G11.-er1111w111 Nm u
PARTJES (Pluce un "X'in011e8t1.tjiirP/uinti.ff
1111</ 011,; Bm Ji1r Defe111/u111)
a
3
Remanded from
Appellate Court
0 4 Reinstated or
Reopened
CJ 5 Transferred from
Another District
(sp,·,:i[v)
Cl 6 Mul11d1str1et
Litiga tion
Cite the U.S. Civil Statute under which you arc filing (Du 11111 citl!jurisdictionol statutl!• unl~ss di,.,,nity):
15 USC 78' b
VI. CAUSE OF ACTION 1-B-r-ie-f d-e-s-cr-ip~ti-o~n~o-fc-a-u-se-:- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Defendants allegedly engaged in activites in violation of S ecurties Laws
VII. REQUESTED IN
COMPLAINT:
-
8
CHECK IF TIIIS IS A CLASS ACTION
UNDER RULE 23, F Cv P.
Cl JECK YES only if demanded in complamt:
DEMAND$
JURY D[MAND:
-
VIII. RELATED CASE(S)
(See i11stru,
IF ANY
IJOCKH NUMBER
OJ· RECORD
•·oR OFHCE lJSt: ONLY
RECl!lPT If
AMO UNT
J UDGE
MAG.JUDGE
)S Yes
O No
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA - DESIGNATION FORM to be used by counsel to indic•te the category of the case for the purpose of
assignment to •pproprlate c•lendar.
Address of Plaintiff:
Address of Defendant:
Moreno 877, 23 Floor, (CI091 AAQ) City ofBucnos Aires, Argentina
Place of Accident. Incident or Transaction: Pennsylvania
----------(-U._s_e_R_e_v-ers_e_S-id~e-F_o_r_A_d_d_u_io_n_a_/~S~p-ac_e_)----------------------
Does this civil action involve a nongovernmental corporate party with any parent corporation and any publicly held corporation owning 10°4 or more of its stock?
(Attach two copies of the Disclosure Statement Form in accordance with Fed.R.Civ.P. 7.l(a))
Docs this case involve multidistrict litigation possibilities?
Yest{_
NoD
Yesd'
NoD
RET.ATED CASE. TF ANY:
Case Number: _ _ _ _ _ _ _ _ _ _ _ _ Judge _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Date Tcnninated: - - - - - - - - - - - - - - - - - - - Civil cases arc deemed related when yes is answered to any of the following questions:
I . ls this case related to property included in an earlier numbered suit pending or within one year previously terminated action in this court?
YcsD
Noi21
2. Docs this case involve the same issue of fact or grow out of the same transaction as a prior suit pending or within one year previously terminated
action in this coun?
YesD
No~
3. Docs this case involve the validity or infringement of a patent already in suit or any earlier numbered case pending or within one year previously
terminated action in this coun?
YesD
NoC21'.
4. Is this case a second or successive habeas corpus, social security appeal, or prose civil rights case filed by the same individual?
YesD
CIVIL: (Place
No~
t/f in ONE CATEGORY ONLY)
A. Federal Question Cases:
I . o Indemnity Contract, Marine Contract, and All Other Contracts
B. Divt!rsity Jurisdiction Cases:
I.
Cl Insurance Contract and Other Contracts
2. o FELA
3. a Jones Act- Personal Injury
4. o Antitrust
S.
CJ Patent
6.
[J
Labor-Management Relations
7. a
Civil Rights
8.
Habeas Corpus
0
9. ~ Securities Act(s) Cases
I 0. o Social Security Review Cases
I I. CJ All other Federal Question Cases
(Please specify)
I,
cK Pursuant to Local Civil Ruic 53.2, Section
Attorney 1.D.#
or within one year previously terminated action In this court
66399
Attorney I.D.#
IN THE UNITED STA TES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
CASE MANAGEMENT TRACK DESIGNATION FORM
, Individually and on Behalf of All
Others Similarly Situated
CIVIL ACTION
v.
CRESUD SOCIEDAD ANON IMA, et al.
NO.
In accordance with the Civil Justice Expense and Delay Reduction Plan of this court, counsel for
plaintiff shall complete a Case Management Track Designation Form in all civil cases at the time of
filing the complaint and serve a copy on all defendants. (See § I :03 of the plan set forth on the reverse
side of this form.) In the event that a defendant does not agree with the plaintiff regarding said
designation, that defendant shall, with its first appearance, submit to the clerk of court and serve on
the plaintiff and all other parties, a Case Management Track Designation Form specifying the track
to which that defendant believes the case should be assigned.
SELECT ONE OF THE FOLLOWING CASE MANAGEMENT TRACKS:
(a) Habeas Corpus - Cases brought under 28 U.S.C. § 2241 through§ 2255.
( )
(b) Social Security - Cases requesting review of a decision of the Secretary of Health
and Human Services denying plaintiff Social Security Benefits.
( )
(c) Arbitration - Cases required to be designated for arbitration under Local Civil Rule 53.2.
( )
(d) Asbestos - Cases involving claims for personal injury or property damage from
exposure to asbestos.
( )
(e) Special Management - Cases that do not fall into tracks (a) through (d) that arc
commonly referred to as complex and that need special or intense management by
the court. (See reverse side of this form for a detailed explanation of special
management cases.)
( x)
(f) Standard
A
FAX Number
E-Mail Address
UNITED ST ATES DISTRICT COURT
EASTERN DISTRICT OF PENNSYLVANIA
, Individually and on Behalf of Case No.
all Others Similarly Situated,
Plaintiff,
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF FEDERAL
SECURITIES LAWS
V.
JURY TRIAL DEMANDED
CRESUD
SOCIEDAD
ANON IMA,
COMERCIAL,
INMOBILIARIA,
FINAN CIERA
Y
AGROPECUARIA,
ALEJANDRO
GUSTA VO
ELSZTAIN,
EDUARDO SERGIO ELSZTAIN, SAUL
ZANG, and MATIAS IV AN GAIVIRONSKY,
Defendants.
Plaintiff
("Plaintiff'), individually and on behalf of all other persons
similarly situated, by Plaintiff's undersigned attorneys, for Plaintiffs complaint against
Defendants, alleges the following based upon personal knowledge as to Plaintiff and Plaintiffs
own acts, and information and belief as to all other matters, based upon, inter alia, the
investigation conducted by and through Plaintiffs attorneys, which included, among other
things, a review of the defendants' public documents, conference calls and announcements made
by defendants, United States Securities and Exchange Commission ("SEC") filings, wire and
press releases published by and regarding Cresud Sociedad An6nima, Comercial, Inmobiliaria,
Financiera y Agropecuaria ("CRESUD" or the "Company"), analysts' reports and advisories
about the Company, and information readily obtainable on the Internet. Plaintiff believes that
substantial evidentiary support will exist for the allegations set forth herein after a reasonable
opportunity for discovery.
NATURE OF THE ACTION
I.
This is a federal securities class action on behalf of a class consisting of all
persons other than Defendants (defined below) who purchased or otherwise acquired CRESUD
American Depositary Receipts (" ADRs") between May 13, 2015 and December 30, 2015, both
dates inclusive (the "Class Period"). Plaintiff seeks to recover compensable damages caused by
Defendants' violations of the federal securities laws and to pursue remedies under Sections 1O(b)
and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule I Ob-5
promulgated thereunder, against the Company and certain of its officers and/or directors.
JURISDICTION AND VENUE
2.
The claims asserted herein arise under and pursuant to §§IO(b) and 20(a) of the
Exchange Act (15 U.S.C. §§78j(b) and §78t(a)) and Rule lOb-5 promulgated thereunder by the
SEC (17 C.F.R. §240.1Ob-5).
3.
This Court has jurisdiction over the subject matter of this action under 28 U.S.C.
§ 1331 and §27 of the Exchange Act.
4.
Venue is proper in this District pursuant to §27 of the Exchange Act ( 15 U .S.C.
§78aa) and 28 U.S.C. §139l(b).
5.
In connection with the acts, conduct and other wrongs alleged in this Complaint,
Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including but not limited to, the United States mail, interstate telephone communications and the
facilities of the national securities exchange.
PARTIES
6.
Plaintiff
, as set forth in the accompanyiqg Certification, purchased
CRESUD ADRs at artificially inflated prices during the Class Period and was damaged upon the
revelation of the alleged corrective disclosures.
7.
Non-party IDB Development Corporation Limited (" IDBD") is an Israeli holding
company with interests in businesses across various industries such as agriculture, financial
services, real estate, communications and technology.
8.
Non-party IRSA Inversiones y Representaciones Sociedad An6nima (" IRSA") is
a real estate company that engages in a range of diversified real estate-related activities in
Argentina. CRESUD beneficially owns 64% of the outstanding common shares of IRSA. IRSA
is incorporated in the Republic of Argentina with principal executive offices located at Bolivar
2
108 (C1066AAB) Buenos Aires, Argentina. IRSA's ADRs trade on the NASDAQ under the
ticker symbol "IRS."
9.
Defendant CRESUD is an agricultural company that produces basic agricultural
commodities in Brazil and other Latin American countries. The Company is incorporated in the
Republic of Argentina with principal executive offices located at Moreno 877, 23 Floor,
(Cl091AAQ) City of Buenos Aires, Argentina. The Company also owns properties m
Pennsylvania. CRESUD's ADRs trade on the NASDAQ under the ticker symbol "CRESY."
I 0.
Defandant Alejandro Gustavo Elsztain ("A. Elsztain") is the brother of Defendant
Eduardo Sergio Elsztain and has been the Second Vice-Chairman and Chief Executive Officer
("CEO") of CRESUD since I 994, the Second Vice-Chairman of IRSA since 200 I, and is a
director of IDBD.
I I.
Defendant Saul Zang ("Zang") has been the First Vice-Chairman of IRSA and
CRESUD since 1994, and is a director of IDBD.
12.
Defendant Eduardo Sergio Elsztain ("Elsztain") has been the Chairman of the
Board of Directors of CRESUD since I 994, the Chairman and Chief Executive Officer ("CEO")
of IRSA since 1991, and is the Chairman of IDBD. Defendant Elsztain beneficially owns 64.3%
of the outstanding common shares of IRSA, and beneficially owns 37.4% of the outstanding
common shares of CRESUD. By virtue of Defendant Elsztain's influence over CRESUD,
Defendant Elsztain has the ability to direct CRESUD's business and affairs.
13.
Defendant Matias Ivan Gaivironsky ("Gaivironsky") has served as CRESUD' s
Chief Financial Officer ("CFO") and as the CFO of IRSA since 2011.
14.
Defendants A. Elsztain, Elsztain, Gaivironsky, and Zang are sometimes referred
to herein as the "Individual Defendants."
..
.)
15.
Defendant CRESUD and the Individual Defendants are referred to herein,
collectively, as the " Defendants."
SUBSTANTIVE ALLEGATIONS
IRSA Adopts International Financial Reporting Standards
16.
IRSA presented both its 2014 and 2015 annual and quarterly financial statements
m accordance with International Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board ("IASB").
17.
According to IFRS 10, Consolidated Financial Statements:
an investor controls an investee if and only if the investor has all the following: a)
power over the investee ( see paragraphs 10-14); b) exposure, or rights, to variable
returns from its involvement with the investee (see paragraphs 15 and 16); and c)
the ability to use its power over the investee to affect the amount of the investor's
returns (see paragraphs t 7 and 18)
18.
The fact that an investor does not exercise its right to appoint a majority of the
investee's board does not, in any way, diminish its control over the investee, as Paragraph BC97
of IFRS IO states in relevant part:
an investor that holds more than half the voting rights of an investee has power
over the investee when those voting rights give the investor the current ability to
direct the relevant activities (either directly or by appointing the members of the
governing body). The Board concluded that such an investor's voting rights are
sufficient to give it power over the investee regardless of whether it has
exercised its voting power ...
[Emphasis added].
19.
IFRS 24 requires that entities involved in related party transactions disclose the
following:
If an entity has had related party transactions during the periods covered by the
financial statements, it shall disclose the nature of the related party relationship as
well as information about those transactions and outstanding balances, including
commitments, necessary for users to understand the potential effect of the
relationship on the financial statements. These disclosure requirements are in
4
addition to those in paragraph 17. At a minimum, disclosures shall include: (a) the
amount of the transactions; (b) the amount of outstanding balances, including
commitments, and: (i) their terms and conditions, including whether they are
secured, and the nature of the consideration to be provided in settlement; and (ii)
details of any guarantees given or received; (c) provisions for doubtful debts
related to the amount of outstanding balances; and (d) the expense recognised
during the period in respect of bad or doubtful debts due from related parties.
The disclosures required by paragraph 18 shall be made separately for each of the
following categories: (a) the parent; (b) entities with joint control or significant
influence over the entity; ( c) subsidiaries; ( d) associates; (e) joint ventures in
which the entity is a venturer; (t) key management personnel of the entity or its
parent; and (g) other related parties.
20.
In discussing relationships between an investor and other parties, IFRS I 0,
paragraphs 874 and 875 state, in part:
874: " ... A party is a de facto agent when the investor has, or those that direct the
activities of the investor have, the ability to direct that party to act on the
investor's behalf. In these circumstances, the investor shall consider its de factor
agent's decision-making rights and its indirect exposure, or rights, to variable
returns through the de factor agent together with its own when assessing control
of an investee."
875: "The following are examples of such other parties that, by the nature of their
relationship, might act as de facto agents for the investor:
a) the investor's related parties.
b) a party that received its interest in the investee as a contribution or
loan from the investor.
c) a party that has agreed not to sell, transfer or encumber its interests in
the investee without the investor's prior approval (except for situations
in which the investor and the other party have the right of prior
approval and the rights are based on mutually agreed terms by willing
independent parties).
d) a party that cannot finance its operations without subordinated
financial support from the investor.
e) an investee for which the majority of the members of its governing
body or for which its key management personnel are the same as those
of the investor.
t) a party that has a close business relationship with the investor, such as
the relationship between a professional service provider and one of its
significant client"
5
Background
21.
CRESUD's financial statements are consolidated with IRSA's. The Company's
Form 20-F for the fiscal year ended June 30, 2014 filed with the SEC on October 31, 2014 (the
"2014 20-F"), and the Company's Form 20-F for the fiscal year ended June 30, 2015 filed with
the SEC on November 17, 2015 (the "20 I 5 20-F"), both state in relevant part:
Revenue Recognition
We derive our revenues primarily from:
*
*
*
(v) through the consolidation of our financial statements with IRSA's, we record
revenue from the rental and operation of services at offices and shopping centers in
Argentina, the development and sale of properties, consumer finance transactions, and
hotel operations.
[Emphasis added].
22.
CRESUD beneficially owns 64% of the outstanding common shares of IRSA, its
controlled subsidiary. CRESUD's stock trades parallel to IRSA's as exhibited by the following
line graph:
6
SPIWCI~ POINT
CA.I'll A" UANA<IP:J,11::;T
23.
IRS and CRESY Share Prices Linked
On May 7, 2014, a transaction was closed whereby IRSA, acting indirectly
through its subsidiary, Dolphin Netherlands B.V. ("Dolphin"), and E.T.H. M.B.M. Extra
Holdings Limited ("Extra"), acquired 53.3% of the common shares of IDBD. Dolphin invested
$272 million for a 50% interest in IDBD, while Extra acquired the remaining 50%. Under the
terms of the agreement, Dolphin and Extra agreed to participate on a joint and several basis in
the capital increases resolved by IDBD's Board of Directors in order to carry out its business
plan for 2014 and 2015, in amounts of at least NIS 300 million in 2014 and NIS 500 million in
2015. As of June 30, 2014, IRSA's indirect interest in IDBD was approximately 23%.
24.
IRSA has designated Dolphin as a Venture Capital Organization ("VCO") under
IFRS 28, which allows IRSA to record its investment in IDBD on its balance sheet as an
7
"investment in associate" and record changes in its value through its income statement. This was
structured in this manner in order to avoid the inevitable consolidation ofIDBD's $6.7 billion net
debt with IRSA's and CRESUD's financial statements.
25.
On December 31 , 20 t 4, IRSA owned 31 % of the common shares of IDBD
through Dolphin, and pursuant to an agreement between Dolphin, IRSA, and Extra, dated
November 17, 2013 (the "Shareholders Agreement"), IRSA's 31 % ownership interest through
Dolphin of IDBD gave it the right to appoint three of the nine members of IDBD's Board of
directors. Subsequently, Dolphin appointed Defendants Elsztain, Zang, and A. Elsztain to the
Board of Directors of IDBD.
26.
On February 10, 2015, Dolphin acquired approximately 61 % of the common
shares of IDBD pursuant to a rights offering approved by the Board of Directors of IDBD. Extra
did not purchase shares in this rights offering. Upon this transaction, IDBD effectively became a
subsidiary of IRSA, which would have required IRSA, and ultimately CRESUD, to consolidate
IDBD's financial statements with its own.
27.
After the completion of the February 10, 2015 rights offering, on February 10,
2015, Dolphin sold approximately 12% of the common shares of IDBD to Inversiones
Financieras Del Sur S.A. ("IFISA") for cash and a note receivable secured by the IDBD shares.
IFISA is a wholly-owned subsidiary of IFIS Limited ("IFIS"). Defendant Elsztain is the
Chairman of the Board of IFIS, and beneficially owns 37.94% of IFIS stock. Defendant Elsztain
also controls more than 50% of IFIS ' voting shares through companies controlled by him and via
proxies. According to Israeli court filings filed by Defendant Zang, the purpose of this
transaction was so Dolphin would not hold more controlling shares than required in order to
secure its control over IDBD.
8
28.
On May 28, 2015, pursuant to the Shareholders Agreement, Extra gave notice to
Dolphin that Extra was exercising its rights under the "buy me buy you" provision requiring
Dolphin to either sell all of its IDBD shares to Extra at a specified price or purchase all of
Extra's shares at that specified price. Dolphin elected to purchase all of Extra's IDBD shares,
and on October 11, 2015, Dolphin, through IFISA, purchased all of Extra's IDBD shares
bringing IFISA's holdings in IDBD to over 32%. Dolphin also assumed all the obligations that
Extra had, including the obligation to make certain share repurchases during 2015 and 2016.
29.
As a result of these transactions, Dolphin owned 49% ofIDBD and IFISA owned
32% of IDBD. Therefore, Dolphin and IFISA collectively owned 81 % of IDBD shares.
30.
Today, IDBD carries $6.7 billion of net debt, is going through a restructuring
process, and has a "going concern" letter from its auditor. Furthermore, IRSA is contractually
obligated to give IDBD $185 million in capital through 2016, which would further increase itss
ownership interest in IDBD.
31.
IRSA hides IDBD's $6.7 billion net debt under the umbrella of Dolphin, its VCO,
by recording its investment in IDBD on its balance sheet as an "investment in associate" and
recording changes in its value through its income statement, even though IRSA, through entities
related to Defendant Elsztain, owns 81 % of its subsidiary IDBD.
Materially False and Misleading Statements
32.
On May 12, 2015, during aftermarket hours, the Company issued a press release
announcing results for the nine month period of fiscal year 2015 ended March 31, 2015, stating
in relevant part:
9
Cresud S.A.C.1.F. y A. Announces Results for the Nine month period of FY
2015 ended March 31, 2015
BUENOS AIRES, Argentina, May 12, 2015 /PRNewswire/ -- Cresud S.A.C.LF. y
A. (NASDAQ: CRESY, BASE: CRES), today announces results for the Nine
month period of FY 2015 ended March 31 , 2015.
HIGHLIGHTS
•
The net income for the Nine month period of 2015 was a loss of ARS
452.9 million, compared to a loss of ARS 527.5 million in the same period
of 2014.
•
Operating income increased by 87.5% in the nine month period
reaching ARS 1.737, 1 million mainly due to higher revenues coming from
the agricultural and urban segment, a higher recognition of the fair value
of the biological assets of grains and sugar cane and the sales of
Investment Properties made by our subsidiary IRSA.
•
During this campaign we expect to transform 11,900 ha in the countries
where we operate. There were no Farmland Sales during the third quarter
of FY 2015.
•
We planted approximately 210,000 hectares in the region during this
campaign that presented good weather conditions. As of March 2015, the
harvest progress is 23%.
Financial Highlights
(In millions of Argentine Pesos)
Nine month Period 2015
Ended March 31, 2015
Income Statement
03/31/2015 03/31/2014
Agricultural Business Revenue
1,642.6
1,141.5
Agricultural Business Gross Profit
224. 1
355. 1
Urban Properties Revenues
2,539.9
2,062.6
Urban Properties Gross Profit
1,407.0
1, 102.4
Consolidated Gross Profit
1,631.2
1,457.5
Consolidated Profit from Operations
1,756.6
935.1
Profit I (Loss) For the Period
-527.5
-452.9
Attributable to:
-487.5
Cresud 1s Shareholders
-494.2
-33.3
Non-Controlling interest
34.6
-0.68
EPS (Basic)
-0.99
EPS (Diluted)
-0.68
-0.99
Balance Sheet
03/31/2015 06/30/2014
10
3,420.l
11,000.8
14,420.9
4,385.7
6,821.2
11,206.9
1,968.7
3,214.0
Current Assets
Non Current Assets
Total Assets
Current Liabilities
Non Current Liabilities
Total Liabilities
Non-Controlling Interest
Shareholders' Equity
4,987.7
10,796.0
15,783.7
4,800.4
6,548.5
11,348.9
2,488.9
4,434.8
On September 7, 2015, during aftermarket hours, the Company issued a press
33.
release announcing results for fiscal year 2015 ended June 30, 2015, stating in relevant part:
Cresud S.A.C.I.F. y A. Announces Results for Fiscal Year 2015 Ended June
30,2015
BUENOS AIRES, Argentina, Sept. 7, 2015 /PRNewswire/ -- Cresud S.A.C.I.F. y
A. (NASDAQ: CRESY, BASE: CRES), today announces results for the Fiscal
Year 2015 ended June 30, 2015.
HIGHLIGHTS
•
The net income for the fiscal year 2015 was a net gain of ARS 756.8
million, compared to a net loss of ARS 1,408.4 million in fiscal year 2014,
explained by a higher operating income, lower exchange rate differences
and losses of IRSA investment in IDBD Development Corporation valued
at
fair
value.
•
Operating income for fiscal year 2015 was ARS 2,792.2 million, 135.6%
higher than in fiscal year 2014, explained by improved results from
Farmland Sales and Sales of Investment Properties from our subsidiary
IRSA.
•
During this year we sold farms for approximately USD 130 million and
transformed
11,545
hectares
in
the
region.
•
Weather conditions during the crop season were good in the region,
allowing us to plant 211,776 hectares and to produce 627,203 tons in the
region. However, the depressed levels of commodity prices did not allow
us to reach a productive return according the campaign.
•
Grain and Sugarcane Segment registered operating losses of ARS 252.9
million and ARS 12.1 million respectively. Cattle and Milk segment
observed operating gains of ARS 36.7 million and ARS 4.2
million respectively, higher than in 2014 due to an increase in meat
t1
production, milk productivity and solid growth in prices of both products.
•
Our investment in IRSA generated very good results. Its EBITDA
reached ARS 2,801.1 million, 91.5% higher than m 2014.
•
We expect a "Nino" campaign for 2016 with rain levels above average.
In Argentina, due to the current macroeconomic conditions and the
profitability equation of the sector, the company is analyzing the surface to
plant in owned farms and the surface that will lease to third parties.
Fiscal Year 2015
Ended June 30, 2015
Income Statement
Urban Properties Gross Profit
Profit I (Loss) For the Period
Attributable to:
Cresud's Shareholders
EPS (Basic)
EPS (Diluted)
Balance Sheet
Current Assets
Non Current Assets
Total Assets
Current Liabilities
Total Liabilities
34.
06/30/2015
2.361 ,0
288,3
2.547, l
1.913,3
2.201 ,9
2.826,9
756.8
06/30/2014
1.812,1
349,4
2.155,8
1.507,5
1.856,9
1.203,0
-1 .408,4
114.0
642.8
0.23
0.21
06/30/2015
4,227.4
11 ,684.9
15,912.3
4,488.5
6,909. l
11,397.5
2,558.9
4,514.8
-1 ,067,9
-340.5
(2.15)
(2.15)
06/30/2014
4,987.7
10,796.0
15,783.7
4,800.4
6,548.5
11,348.9
2,488.9
4,434.8
On November 11, 2015, during aftermarket hours, the Company issued a press
release announcing results for the first quarter 2016 ended September 30, 2015, stating in
relevant part:
12
Cresud S.A.C.I.F. y A. Announces Results for the First Quarter 2016 ended
September 30, 2015
BUENOS AIRES, Argentina, Nov. 11, 2015 /PRNewswire/ --Cresud S.A.C.l.F.
y A. (NASDAQ: CRESY, BASE: CRES), today announces results for the First
Quarter of FY 2016 ended September 30, 2015.
HIGHLIGHTS
•
Net loss for the first quarter of 2016 was ARS 361.8 million compared to
income for ARS 21. 7 million in the same period of 2015, mainly due to
the change in the valuation method applied with respect to our subsidiary
IRSA's investment in IDB Development Corporation.
•
Profit from operations rose 12.5% in the quarter, mainly due to higher
revenues and sales of investment properties derived from the urban
segment, offset by lower profits from the agricultural segment.
•
During this quarter we made no sales of fannlands in the region.
•
We expect to plant approximately 176,000 hectares in the region.
•
Our subsidiary Brasilagro declared dividends for BRL 80.7
million (BRL/share 1.3977) that will become payable on November 13,
2015.
First Quarter of FY 2016
Ended September 30, 2015
Income Statement
09/30/2015
679.9
86.l
721.0
540.3
Urban Properties Gross Profrt
Profit/ (Loss) For the Period
09/30/2014
780.2
105.4
596.6
617.5
441.3
540.5
670.8
596.3
(361.8)
21.7
(292.2)
(69.6)
(122.0)
143.7
Attributable to:
Cresud's Shareholders
13
EPS (Basic)
EPS (Diluted)
(0.59)
(0.59)
Balance Sheet
Current Assets
Non Current Assets
(0.25)
(0.25)
09/30/2015
4,669.8
06/30/2015
4,212.1
11,067.3
11 ,684.9
Total Assets
15,737. l
15,897.0
Current Liabilities
4,096.4
7,831.7
4,473.2
6,909.1
Total Liabilities
11,928.1
11,382.3
2,258.9
3,809.0
2,558.9
4,514.8
35.
On November 17, 2015 the Company filed its 2015 20-F with the SEC, which
provided the Company' s year-end financial results and position and stated that the Company's
internal control over financial reporting was effective as of June 30, 2015. The 2015 20-F was
signed by Defendant Gaivironsky. The 2015 20-F also contained signed certifications pursuant to
the Sarbanes-Oxley Act of 2002 ("SOX") by Defendants A. Elsztain and Gaivironsky attesting to
the accuracy of financial reporting.
36.
The 2015 20-F stated that IRSA's Global Notes program contains an "lncurrence
of Additional Indebtedness" covenant that expressly prohibits its EBITDA to Interest ratio to be
less than 1. 75x. The 2015 20-F stated in part:
IRSA NCN due 2017 and 2020 contain certain customary covenants and
restrictions, including among others, limitations for the incurrence of additional
indebtedness, restricted payments, disposal of assets, and entering into certain
transactions with related companies.
Under the NCN indentures, IRSA is pennitted to incur additional indebtedness
provided its coverage of consolidated interest ratio is higher than 1.75. The
coverage of consolidated interest ratio is defined as consolidated EBITDA divided
by consolidated interest expense, subject to certain adjustments. EBITDA is
14
defined as operating income plus, depreciation and amortization and other
consolidated non-cash charges.
37.
The 2015 20-F also stated that Dolphin qualifies as a VCO under IFRS 28, stating
in part:
As Dolphin is a subsidiary that qualifies as a VCO in accordance with the IAS 28
exemption referred to in Note 2.3 (d), the Company has recorded its interest in
IDBD at fair value with changes in the income statement.
*
*
*
Venture Capital Organization
We generally account for our investments in associates under the equity method.
However, IAS 28 "Investments in Associates" provides an exemption from
applying the equity method where investments in associates are held through
"Venture Capital Organizations" (VCO) or venture capital entities, as defined in
Spanish, even when we are not a VCO. This type of investment may be accounted
for at fair value with changes in net income for the years because such measure
proves to be more useful to users of financial statements than the equity method.
38.
The statements referenced in
~
32-37 above were materially false and/or
misleading because they misrepresented and failed to disclose the following adverse facts
pertaining to the Company's business, operational and financial results, which were known to
Defendants or recklessly disregarded by them. Specifically, Defendants made false and/or
misleading statements and/or failed to disclose that: (1) Dolphin does not adequately qualify as a
VCO, and therefore, IDBD's $6.7 billion net debt should be consolidated with IRSA' s financial
statements; (2) as such, CRESUD's financial statements failed to consolidate IDBD's $6.7
billion net debt; (3) IRSA's impending consolidation of IDBD's debt would violate IRSA's
Global Notes Indenture, as IRSA would be in breach of the "Incurrence of Additional
Indebtedness" covenant, which prohibits its EBITDA to interest coverage ratio to be less than
15
Case 2:16-cv-02061-PD Document 1-1 Filed 04/29/16 Page 1 of 16
l .7Sx; and (4) as a result, the Company's public statements were materially false and misleading
at all relevant times.
The Truth Begins To Emerge
39.
On November 19, 2015, Spruce Point Capital Management published an
investment research report on IRSA and CRESUD ("Spruce Point Report") asserting the
following:
•
[RSA (NYSE: IRS) is a Latin American real estate company. IRSA
recently invested $300m+ in IDB Development Corp. (TLV: IDBD), an
Israeli holding company with interests in real estate, communications,
agricultural products, insurance and technology. IDBD is burdened with
$6. 7 billion of net debt, going through a restructuring process, and
has a "going concern" warning from its auditor. It is dependent on
further capital injection commitments from IRSA of approximately $185m
through 2016
•
Together with IFISA, a related-party and controlled entity of IRSA's
Chairman, it appears that IRSA owns 81 % of IDBD, a controlling
stake that should trigger IDBD being consolidated into the financial
results of IRSA. IRSA claims that it only owns 49%. The additional
capital injections of $ l 85m will only increase the aforementioned
ownership stake above the current level
•
IRSA has used a narrow loophole in International Financial Reporting
Standards ("IFRS") accounting to avoid consolidation by designating its
IDBD investment through Dolphin Fund, a subsidiary designated a
Venture Capital Organization ("VCO"). In our opinion, this is a grossly
flawed accounting application to avoid consolidation and we've provided
documentary evidence that calls into question Dolphin's status as a VCO.
Upon consolidation, we estimate IRSA's pro forma Net Debt I
EBITDA leverage to be 8.6x
•
Under IRSA's outstanding Global Notes indenture, a consolidation of
IDBD's debt would result in a covenant breach of its EBITDA to
interest coverage ratio of I. 75x (we estimate pro fonna I .25x). At its
October shareholder meeting, IRSA took the necessary steps to issue a
further $300m in Global Notes, perhaps as means to fund its IDBD capital
injections. A covenant breach would impede this issuance
•
In a November NT 20-F filing (a request for an extension to file its annual
report), IRSA suggested that the SEC may be currently investigating the
16
consolidation issue by requiring IDBD financial statements audited under
US GAAS. The SEC denied its request to Israeli GAAS statements
instead. In its new 20-F filing, IRSA included a big risk factor that its
inability to provide such audited financials would "materially
adversely affect" its ability its access to capital markets, and may
ultimately result in the delisting of its shares.
•
IRSA trades at 3.6x book value, an irrational price given the apparent
covenant breach and debt issues upon IDBD consolidation. If IRSA
traded at 1x book value, its stock would be worth $4. 75 per ADR
(approx. 70% downside)
•
IRSA is 64% owned by Cresud (Nasdaq: CRESY). CRESY's stock
trades parallel to IRSA's and could fall to $4.00 per ADR (-70%)
[Emphasis added].
40.
Specifically, the Spruce Point Report asserts that Dolphin does not qualify as a
VCO, and therefore, IDBD's $6.7 net debt should be consolidated with IRSA's financial
statements. The report states in part:
In our opinion, IRSA's Dolphin Fund VCO entities bear no resemblance to a
venture fund by any stretch of the imagination. In short, we believe the
designation as a VCO is grossly inappropriate and designed to avoid
consolidating IDBD's $6.7 billion of net debt on to IRSA's books
We Believe IDBD Should Be Consolidated Into IRSA's Financials: IRSA's
accounting choice appears designed for one thing; to avoid consolidation of IDBD
into its financials. We can understand why; IDBD is massively levered with $6.7
billion of net debt outstanding as of 6/30/1 5. Despite IRSA having already
injected $300m+ into IDBD since 2014, IDBD still has received a "going
concern" warning from its auditor as of 613011 5. IRSA has commitments to inject
a further $185m into IDBD through 2016.
*
*
*
Our interpretation of Dolphin and its entities suggest that it is not a Venture
Capital Organization
*
*
*
Dolphin Funds Ltd. Is Really Just An Entity Controlled For IRSA's Benefit
17
*
*
*
RSA should be reporting to the SEC the activities of IDBD, a material subsidiary
which we believe should be consolidated. To illustrate, IRSA's total assets as of
6/30/ 15 were approximately $960m (adjusted to exclude reporting IDBD as an
associate). IDBD's assets totaled $10.5 billion at 6/30/ 15 or 1 lx larger than
IRSA's assets!
*
*
*
We Believe /RSA Should Consolidate IDBD's Mountain of Debt
[Emphasis added].
4 t.
Specifically, the Spruce Point Report asserts that IRSA, and entities related to
Defendant Elsztain such as, Dolphin, IFIS, and IFISA, own 81% oflDBD's shares and therefore
effectively control IDBD. The report states in part:
Egregious Accounting For IRSA's Controlling Investment in IDB Holdings:
Our close examination of the facts and circumstances suggest that IRSA has
majority control of IDBD through related-party entities under common control
that have accumulated 81 % oflDBD's shares.
*
*
*
Plenty of Related Party Deals To Consider: IRSA makes numerous disclosures
about related-party transactions. IRSA has the largest list of related-party
transactions that Spruce Point has, to date, ever seen! To illustrate, IRSA' s 2015
20-F Note 37 to the financial statements include 17 pages (Fl80 to Fl97) of
related party disclosures! We have found instances of related party transactions
not adequately described to IRSA investors.
*
*
*
In our opinion, the net effect is that IRSA now owns 81 % through its common
control interests in Dolphin and IFISA and has the right to appoint an additional
three Board members (for a total of six of nine)
*
*
*
We estimate that Dolphin, IFISA, and entities related to Eduardo Elsztain now
own approximately 81 % of IDBD (vs. 49% reported in its SEC financial filings),
and clearly has control of IDBD
[Emphasis added] .
18
42.
Specifically, the Spruce Point Report also asserts that IDBD itself views IRSA's
ownership in 1080 at 66.73%, stating in part:
anl J.,..,T)B Say Vastly Different Things
About Control and Ownership levels
[
1
H; a
As of Nov 17, 2015 when IRSA filed Its previously delinquent FY 2015 20-F, IRSA still claims that It owns
49% of 1080 and does not control the company. IDBD vtewed IRSA's ownership at 66.73% as of its mid
year 2015 filing.
2015 Q2
IDB Development Corporation
lkporf of tlH' Uoard of the l>h'l'rton l'l'~ardinj! thl' ~tak of the Compnny', .\ ffnirs
( ront'd)
1)1,pmc:, hl.'twc:c:n the ..:ontrnll1112 ,h:m:holdcr, ol the ( ·ompanv - .\~ :i re~uh nf the righh 1~,uc that
,,a, .:ompktc:li in I chni.u~ ;0 l 5, tlw r,1t.: or h0lllins ~ of the u•rpt1r;itio11, <=lllltrolkd h~ ~Ir. l:Ju:ml,,
l:hLt:un . D(>lphin Fund L1m1k<l. D,,lplnn ;\'c:th"°rl.mJs .md ht\l.'r~iL>nc:s rinanc:ic:r:b D.:I Sur S.:\. (th.:
"Dolphin Group <'<1111p:111i.:s··1 in.::n:;1~,:d w ;1pp1\lXim:ucly 61.5° ,, of the issu-:d c:,1pital ,or the:
l l•mp.111:, (J" l>I th.: r.:pllning d,1te ,mJ ;1rt.:r th.: t:\..:n:i,.: of\\a!T.tnh (Sc:n.:-.-1) by th.: DL1lphm Uwup
t L•mp.11111..·, . ;1, ,p.:1.:tlicJ hdo\\ . the lwkhng rate: ts .1pp1uxm1;1t.,:I:, 66 7.~0 o ). \\ hcr,:a, th,: lwl<lmg r,llc
ol :O.lr :-.1 ..nkd1,ll lkn-\lo,hi: (thr11u~h C:.A .•\ I Jc:cn:a,c:J t,l appro\im.udy 1(,.2°~ of rhc: i,,ucd
1..,1p!l.1l (.1, <•I 1lw r.:portmg J,llC'. approx1111.1td\' I .~.9')'!ol ·1 ht: afor.:111.:n1w11..:J ch.111g..:, m the ral<:s of
11> t 111:,! 111 t 1c: <."1m1pany m;,y c:al It• 1: 1:ingr:, 111 t 1.: l ompany·~ contrn ,1rn1:ltm:. ,llll m t 1.:
compn,itii)n L1f ih u,~ard ,if l)ircctob. In :111 cxch:.ingc of letter, hc1,,·ccn mcmb.:r comp:1111.:, ot the
D,1lphin Gr,1up and CA.A .. in the: !ll(•llths uf Fdinimy .iml ;,..1:.ird1 2015. th,: rm:mb.:r 1.:0111p;1111c, of
the: D,,lphin GrNtp ,km:mdi:d. folio,, ing rhc right~ i,~u,: ;inJ in .::onnc..:t1on "1th the ,h:1rd1okh:rs
.1gn:,:m1:11t bd\\ .:i:n the paruc:,. im.:r .,ha. d1:1nge, tu tht: 1..ompo,111,>11 or th..: lhianl n! Dm:.:tnr, nl the
( ·ompany. 111 ,1 m;mncr ,,hcn:h~ th..: m.:mhcr .. ompamc, t>l"thc l).,Jphm (1r,.up \\111 he lht: <lnnun.mt
12
43.
Specifically, the Spruce Point Report also asserts that IRSA should have included
IDBD in its consolidated financial statements as a subsidiary as of March 31, 2015, stating in
part:
19
SPIWCE POINT,
C~l'ITAI. l!ANAllf:l.U:,:T
Evidence !RSA Controls /DBD
We believe that 1080 became a subsidiary of IRSA as a result of the February 2015 rights offering, which
resulted in an increase in Dolphin's ownership Interest to 61°k of IDBD's outstanding shares. IFRS 10
Consolidated Financial Statements, states, In part:
•an investor controls an investee if and only if the investor has all the following :
a) power over the investee (see paragraphs 10-14);
b) exposure. or rights . to variable returns from its involvement with the investee (see paragraphs 15 and 16): and
c) the ability to use its power over the investee to affect the amount of the investor's returns
(see paragraphs 17 and 1
ar
• We believe that Dolphin controlled 1080 subsequent to the rights offering as it had the right to call a General Meeting
and appoint a majonty of IOBO's directors due to its 61 o/., interest. Eduardo is currently Chairman or the Board, and
Dolphin also appointed Alejandro Gustavo Efsztain and Saur Zang as regular members (although IDBD's website
does not show Alejandro). Currently three of nine members are representatives of IRSAJDolphin. Therefore, IRSA
should have induded IDBD in its consolidated finanaal statements as a subsidiary as or March 31 , 2015. The fact
that Dolphin did not exercise tis right to appoint a majonty of IDBD's board does not, in any way. diminish its control
over IDBD. Paragraph BC97 of IFRS 10 addresses that topic, staling, in part:
·an investor that holds more than half the voting nghts of an investee has power over the investee when those
voting rights give the investor the current ability to direct the relevant activities (either directly or by appointing the
members of the govemmg body} The Board concluded that such an investor's voting rights are sufficient to gwe
it power over the investee regardless of whether it has exercised its voting power.. -·
lC
44.
Specifically, the Spruce Point Report also asserts that Defendant Zang, in Israeli
court filings, acknowledged the fact that Dolphin indeed controls IDBD, stating in part:
20
Israeli Legal Docun1ent Evidence of Control
Sr1rnc1~ PotNT
CAl'11'AI. MANAGt:Ml:}:1"
In a signed affldavlt to the Israeli Court, Saul Zang - First Vice Chairman of IRSA - stated fairly clearly
that the transactions with Dolphin and IFISA were a policy matter related to control over 1080. Mr. Zang
Is the same Individual that signs IRSA's financial statements and filings to the SEC.
J L IFI~ \ put..:h;.!-..:.d ,'12n.:~ trom IJ,,lphin on ly P.flcr t'lc: cornplctton ,;f ,he rif.lil t1fteri11g, and
·1fit>r Polphin c;\.c:n:1~,·J ,ln' riglt1~ ii IJjlJ .ii. pt!rt of th<.' right.~ ofii:rtn)?. r~-ce1vc11 th:: ,h11rc-.. 10
II.!- p, h ..._·,~1un
ll!HI
mj .:...it:d rnto 11)111) :,Ii th~ "imch it li~.i mni<:rt-"kcn to inji:-d .:s part 1.1itb,;
nglm (•lfl:riu)!,. •J11l~ ulkr ih, 1mc:c1i.:>n
,,t capual
trom D{..Jphi!1 10 ll)BD
\~.J!>
-::,implr:1(,d.
\\ a-.; ,ht" tra11·;.1c1io11 11,a,fa to 5dl :h~ ~h.u~·:; frt.1m Dvlphm w lFISA. 1111~ mmsact,,,;1 was
\.).r:c.:utcd due I<" intt:"ma l c on ~i;lcr:it1f1f,<; r t l)nlphir, ;, hidt prdc:1 :,,
111.:,ie
w, a polk·), 1101 h' l1 l'IJ
-:Q!llrL•llu1g si.Jai~ limn b rcquui;d to ~1.:.:w1.. 11~ .:N.irol ,J~cr IDBD
t hc~by ckdan: lhat this i> m~ 111t1m:. this i~ m~ signature am.I all !hill b ~t.,l~.J lll ibis uffiJ.1\'it vf
mine is Uu1:.
\
1
/'
•
j
-~------1¥'--=-<s:s__ __' \
Source. lsri!$'!1
45.
-:;11ul
/llJli; - - - - - - -
eour1 s-ntoro
Specifically, the Spruce Point Report also asserts that consolidation of IDBD's
debt would be in violation of IRSA's Global Notes Indenture, because IRSA would be in breach
of the "lncurrence of Additional Indebtedness" covenant, which prohibits its EBITDA to interest
coverage ratio to be less than 1. 75x. The report states in part:
•Under IRSA's outstanding Global Notes indenture, a consolidation of IDBD's
debt would result in a covenant breach of its EBITDA to interest coverage ratio of
l.75x (we estimate pro fonna l.25x). At its October shareholder meeting, IRSA
took the necessary steps to issue a further $300m in Global Notes, perhaps as
means to fund its IDBD capital injections. A covenant breach would impede this
issuance
*
*
*
Under IRSA's Global Bond Indenture, It Appears To Be In Violation of its
Covenants: IRSA currently carries US$300m of debt issued under its Global
Notes program which mature in 2017 and 2020. Its indenture contains an
21
"lncurrence of Additional Indebtedness" covenant that expressly prohibits its
EBITDA to Interest ratio to be less than l.75x on a pro forma basis. Given
IDBD's substantial debt load (consisting primarily of unsecured debentures
amounting to $5.4 billion), we estimate IRSA's pro forma coverage ratio to be
l.25x (I.Ox excluding one-time property gains). It is our view that IRSA is in
imminent risk of a covenant breach
*
*
*
/RSA Violates its Bond Covenants Upon Consolidation of IDBD
[Emphasis added].
46.
Specifically, the Spruce Point Report also asserts that IRSA "had accepted a note
from IFISA for approximately 86% of the sale price secured by a pledge of the IDBD shares," as
consideration for the February 10, 2015 sale of IDBD shares to IFISA from Dolphin.
47.
Specifically, the Spruce Point Report also asserts that the terms of the February
10, 2015 related party transaction between Dolphin and IFISA were not disclosed as required by
IFRS 24 Related Party Disclosures.
48.
Specifically, the Spruce Point Report also asserts that as a result of the impending
consolidation of IDBD's $6.7 billion net debt, the price of CRESUD's shares could become
substantially impaired, stating in relevant part:
CRESY's stock trades parallel to IRSA's and could fall to $4.00 per ADR (70%)
*
*
*
By Virtue of Cresud Owning 64.3% of IRSA, We Believe Its Shares Risk
Impairment: Cresud (Nasdaq: CRESY), a Latin American agriculture company,
is also controlled by Mr. Elsztain. Its current market cap of $650m approximates
its IRSA ownership. If IRSA's price becomes impaired from a covenant breach,
CRESY's stock price could also become impaired as it consolidates IRSA's debt
load. We see a similar 70% downside to its share price
49.
Specifically, the Spruce Point Report also asserts that "IDBD became a subsidiary
of IRSA as a result of the February 2015 rights offering, which resulted in an increase in
22
Dolphin's ownership interest to 61 % of IDBD's outstanding shares", and asserts that "[b]ecause
IFISA is a related party of Dolphin and because Dolphin financed IFISA's purchase of the IDBD
shares, we believe that, in accordance with paragraphs 874 and 875 of IFRS 10, IFISA is
Dolphin's de facto agent and the shares held by IFISA should be attributed to Dolphin, and
ultimately IRSA's total ownership ofID80".
50.
On this news, shares of CRESUD fell $1.55 per share or approximately 12% over
the next two days to close at $ 11. 13 per share on November 20, 2015, damaging investors.
Additional False and Misleading Statements
51.
On November 20, 20 I 5, CRESUD issued a press release denying the Spruce Point
Report, which states in part:
Cresud S.A.C.I.F. y A. Material Fact
BUENOS AIRES, Argentina, Nov. 20, 2015 /PRNewswire/ -- Cresud S.A.C.I.F.
y A. (NASDAQ: CRESY, MERVAL: CRES), today issued a statement in
response to what it considers to be a misleading, unprincipled report issued
on November 19, 2015 by Spruce Point Capital Management (the "Fund") and to
unusually high trading volume in its stock shortly after publication of the Spruce
Point report.
The Fund is a self-identified short-seller in Cresud's stock. Its own report reveals
that the Fund and its affiliates have a "short position" in Cresud's stock "and
therefore stand to realize significant gains" in the event that the price of Cresud's
stocks declines. The Company believes that the short-seller Fund's self-interest is
clearly evident, and that its report is riddled with incorrect inferences and
inappropriate innuendo.
Eduardo Elsztain, Chainnan of Cresud, said, "We stand by the accuracy and
integrity of our financial statements, which were audited by an internalional/yrecognized external accountant firm, and our regulatory filings. We disagree
with the short-seller fund's uninformed implication that we might not have
complied with our obligations under our debt instruments. This, quite simply, is
not lhe case. Cresud is proud of its decades-long track record of compliance. and
transparency in the international capital markets and categorically rejects any
self-serving suggestion to the contrary."
Cresud (NASDAQ: CRESY , MERVAL: CRES) is a 79 year leading LatinAmerican agricultural company engaged in the production of basic agricultural
23
commodities with a growing presence in Brazil through its investment in
BrasilAgro-Companhia Brasileira de Propriedades Agricolas (NYSE: LND),
and in other Latin American countries. Cresud is currently involved in a range of
activities including crop production, beef cattle raising and milk production. The
Company's business model focuses on the acquisition, development and
exploitation of properties having attractive prospects for agricultural production
and/or value appreciation and the selective disposition of such properties where
appreciation has been realized. Cresud's shares are listed on the Buenos Aires
Stock Exchange and its ADSs are listed on the NASDAQ Global Select Market.
Additionally, Cresud owns as of September 30, 2015 a 64.30% stake in [RSA
Inversiones y Representaciones S.A., Argentina'slargest, most well-diversified
real estate company.
52.
On November 24, 2015, CRESUD filed a Form 6-K with the SEC denying the
Spruce Point Report, which stated in part:
By letter dated November 24, 2015, the Company reported that, its controlled
subsidiary IRSA lnversiones y Representaciones S.A. ("IRSA'') has filed the
following information:
IRSA affirms the accuracy of (i) its consolidated financial statements as of and for
its fiscal year ended June 30, 2015 which were audited by Price Waterhouse & Co
S.R.L. and (ii) its unaudited consolidated financial statements as of and for the
three-month period ended September 30, 2015. IRSA's audited annual and
unaudited quarterly consolidated financial statements were prepared in
accordance with IFRS.
For the reasons summarized below, and in accordance with IFRS, IRSA did not
consolidate IDBD in such financial statements.
At both June 30 and September 30, 2015, IRSA had an indirect 49% interest in
IDBD. On June 30, 2015 and September 30, 2015, IFISA held an interest of
37.39% and 36.76%, respectively, in Cresud, which on both dates held a 64.3%
interest in IRSA. Additionally, IFISA held an interest of 17.7% in IDBD on both
dates. At both June 30 and September 30, 2015, [RSA, IFISA and Mr. Mordechai
Ben-Moshe ("MBM") were parties to a joint control agreement (the "Joint Control
Agreement") with respect to their respective investments in IDBD. Therefore,
IRSA did not have effective control over IBDB on either of such dates. For this
reason, and in accordance with IFRS, IRSA did not consolidate IDBD in its
annual or most recent unaudited quarterly consolidated financial statements.
On October 11, 2015, IFISA (not IRSA) acquired shares representing an
additional 14% of IDBD, and on such date the Joint Control Agreement was
terminated. Due to the October 11 termination of the Joint Control Agreement,
24
IRSA is currently assessing whether or not it should begin to consolidate IBDB
commencing on the date as of which the Elsztain group (i.e., IFISA, IRSA and
related companies) obtained effective control over IDBD. No conclusion has
been reached yet.
On October 9, 2015, IRSA filed with the SEC a request for a waiver of the
provisions of Rule 3-09 of Regulation S-X which would require IRSA to include
in its annual report on Form 20-F the separate financial statements of IDBD as of
and for the year ended December 31, 2014 audited in accordance with US
GAAS. !RSA filed this waiver request because IDBD does not have US GAAS
financial statements, and !RSA believes that their preparation would take time and
would impose an undue economic burden on IRSA. This issue is unrelated to
IRSA's consolidation analysis. IRSA has no reason to believe that the SEC is
conducting any kind of investigation with respect to IRSA's financial statements
or otherwise.
It should be noted that IDBD's audited consolidated financial statements for the
year ended December 31, 2014 and its unaudited consolidated financial
statements as of and for the six-month period ended June 30, 2015 were prepared
in accordance with IFRS, audited under Israel GAAS by KPMG, and are publicly
available on IDBD's website.
All of IDBD's Debt is Non-Recourse to IRSA.
Irrespective of whether IRSA consolidates IDBD's indebtedness in its future
financial statements, none of such indebtedness is guaranteed by IRSA or secured
by any of IRSA's assets. All of IDBD's indebtedness is non-recourse to IRSA.
IRSA Has Complied with its Debt Covenants.
IRSA's outstanding indebtedness includes its local bonds, its US$150 million
Notes due 2017 and its US$150 million Notes due 2020. IRSA's debt instruments
contain certain incurrence (not maintenance) covenants that limit the incurrence
of indebtedness. IRSA has carefully reviewed all its debt agreements and believes
that it is in compliance with all applicable covenants and, assuming no increase in
IRSA's shareholding in IDBD, will remain in compliance even if it consolidates
IDBD in its future financial statements.
53.
The statements referenced in ,, 51 - 52 above were materially false and/or
misleading because they misrepresented and failed to disclose the following adverse facts
pertaining to the Company's business, operational and financial results, which were known to
Defendants or recklessly disregarded by them. Specifically, Defendants made false and/or
25
misleading statements and/or failed to disclose that: (I) Dolphin does not adequately qualify as a
VCO, and therefore, IDBD's $6.7 billion net debt should be consolidated with IRSA's financial
statements; (2) as such, CRESUD's financial statements failed to consolidate IDBD's $6.7
billion net debt; (3) IRSA's impending consolidation of IDBD's debt would violate IRSA's
Global Notes Indenture, as IRSA would be in breach of the "Incurrence of Additional
Indebtedness" covenant, which prohibits its EBITDA to interest coverage ratio to be less than
l.75x; and (4) as a result, the Company's public statements were materially false and misleading
at all relevant times.
The Truth Emerges
54.
On December 30, 2015, during aftermarket hours, the Company filed a Form 6-K
with the SEC announcing that IRSA will consolidate its investment in IDBD retroactive October
11, 2015.
55.
On this news, shares of CRESUD fell $0.08 per share from its previous closing
price to close at $12.90 per share on December 31, 2015, further damaging investors.
56.
As a result of Defendants' wrongful acts and omissions, and the precipitous
decline in the market value of the Company's securities, Plaintiff and other Class members have
suffered significant losses and damages.
PLAINTIFF'S CLASS ACTION ALLEGATIONS
57.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or
otherwise acquired CRESUD securities trade on the NASDAQ during the Class Period (the
"Class"); and were damaged upon the revelation of the alleged corrective disclosures. Excluded
from the Class are Defendants herein, the officers and directors of the Company, at all relevant
26
times, members of their immediate families and their legal representatives, heirs, successors or
assigns and any entity in which Defendants have or had a controlling interest.
58.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, CRESUD securities were actively traded on the
NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and
can be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds
or thousands of members in the proposed Class. Record owners and other members of the Class
may be identified from records maintained by CRESUD or its transfer agent and may be notified
of the pendency of this action by mail, using the form of notice similar to that customarily used
in securities class actions.
59.
Plaintiffs claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants' wrongful conduct in violation of
federal law that is complained of herein.
60.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
Plaintiff has no interests antagonistic to or in conflict with those of the Class.
61.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
•
whether the federal securities laws were violated by Defendants' acts as alleged
herein;
•
whether statements made by Defendants to the investing public during the Class
Period misrepresented material facts about the business, operations and
management of CRESUD;
27
•
whether the Individual Defendants caused CRESUD to issue false and misleading
public statements during the Class Period;
•
whether Defendants acted knowingly or recklessly in issuing false and misleading
public statements;
•
whether the prices of CRESUD securities during the Class Period were artificially
inflated because of the Defendants' conduct complained of herein; and,
•
whether the members of the Class have sustained damages and, if so, what is the
proper measure of damages.
62.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
63.
Plaintiff will rely, in part, upon the presumption of reliance established by the
fraud-on-the-market doctrine in that:
•
Defendants made public misrepresentations or failed to disclose material facts
during the Class Period;
•
the omissions and misrepresentations were material;
•
CRESUD securities are traded in efficient markets;
•
the Company's shares were liquid and traded with moderate to heavy volume
during the Class Period;
•
the Company traded on the NASDAQ, and was covered by multiple analysts;
•
the misrepresentations and omissions alleged would tend to induce a reasonable
investor to misjudge the value of the Company's securities; and
•
Plaintiff and members of the Class purchased and/or sold CRESUD securities
between the time the Defendants failed to disclose or misrepresented material
28
facts and the time the true facts were disclosed, without knowledge of the omitted
or misrepresented facts.
64.
Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
65.
Alternatively, Plaintiff and the members of the Class are entitled to the
presumption of reliance established by the Supreme Court in Affiliated Ute Citizens of the State
of Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material
information in their Class Period statements in violation of a duty to disclose such information,
as detailed above.
COUNT I
Violation of Section lO(b) of The Exchange Act and Rule lOb-5
Against All Defendants
66.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
67.
This Count is asserted against Defendants and is based upon Section IO(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and Rule lOb-5 promulgated thereunder by the SEC.
68.
During the Class Period, Defendants engaged in a plan, scheme, conspiracy and
course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,
practices and courses of business which operated as a fraud and deceit upon Plaintiff and the
other members of the Class; made various untrue statements of material facts and omitted to state
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; and employed devices, schemes and artifices to
defraud in connection with the purchase and sale of securities. Such scheme was intended to,
and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and
29
other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of
CRESUD securities; and (iii) cause Plaintiff and other members of the Class to purchase or
otherwise acquire CRESUD securities and options at artificially inflated prices. In furtherance of
this unlawful scheme, plan and course of conduct, Defendants, and each of them, took the
actions set forth herein.
69.
Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the
Defendants participated directly or indirectly in the preparation and/or issuance of the quarterly
and annual reports, SEC filings, press releases and other statements and documents described
above, including statements made to securities analysts and the media that were designed to
influence the market for CRESUD securities. Such reports, filings, releases and statements were
materially false and misleading in that they failed to disclose material adverse information and
misrepresented the truth about CRESUD's finances and business prospects.
70.
By virtue of their positions at CRESUD, Defendants had actual knowledge of the
materially false and misleading statements and material omissions alleged herein and intended
thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, Defendants
acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose
such facts as would reveal the materially false and misleading nature of the statements made,
although such facts were readily available to Defendants. Said acts and omissions of Defendants
were committed willfully or with reckless disregard for the truth. In addition, each defendant
knew or recklessly disregarded that material facts were being misrepresented or omitted as
described above.
71.
Information showing that Defendants acted knowingly or with reckless disregard
for the truth is peculiarly within Defendants' knowledge and control. As the senior managers
30
and/or directors of CRESUD, the Individual Defendants had knowledge of the details of
CRESUD's internal affairs.
72.
The Individual Defendants are liable both directly and indirectly for the wrongs
complained of herein. Because of their positions of control and authority, the Individual
Defendants were able to and did, directly or indirectly, control the content of the statements of
CRESUD. As officers and/or directors of a publicly-held company, the Individual Defendants
had a duty to disseminate timely, accurate, and truthful information with respect to CRESUD's
businesses, operations, future financial condition and future prospects. As a result of the
dissemination of the aforementioned false and misleading reports, releases and public statements,
the market price for CRESUD's securities was artificially inflated throughout the Class Period.
In ignorance of the adverse facts concerning CRESUD's business and financial condition which
were concealed by Defendants, Plaintiff and the other members of the Class purchased or
otherwise acquired CRESUD securities at artificially inflated prices and relied upon the price of
the securities, the integrity of the market for the securities and/or upon statements disseminated
by Defendants, and were damaged upon the revelation of the alleged corrective disclosures.
73.
During the Class Period, CRESUD's securities were traded on an active and
efficient market. Plaintiff and the other members of the Class, relying on the materially false and
misleading statements described herein, which the Defendants made, issued or caused to be
disseminated, or relying upon the integrity of the market, purchased or otherwise acquired shares
of CRESUD securities at prices artificially inflated by Defendants' wrongful conduct. Had
Plaintiff and the other members of the Class known the truth, they would not have purchased or
otherwise acquired said securities, or would not have purchased or otherwise acquired them at
the inflated prices that were paid. At the time of the purchases and/or acquisitions by Plaintiff
31
and the Class, the true value of CRESUD securities was substantially lower than the prices paid
by Plaintiff and the other members of the Class. The market price of CRESUD's securities
declined sharply upon public disclosure of the facts alleged herein to the injury of Plaintiff and
Class members.
74.
By reason of the conduct alleged herein, Defendants knowingly or recklessly,
directly or indirectly, have violated Section IO(b) of the Exchange Act and Rule lOb-5
promulgated thereunder.
75.
As a direct and proximate result of Defendants' wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases,
acquisitions and sales of the Company's securities during the Class Period, upon the disclosure
that the Company had been disseminating misrepresented financial statements to the investing
public.
COUNT II
Violation of Section 20(a) of The Exchange Act
Against The Individual Defendants
76.
Plaintiff repeats and realleges each and every allegation contained m the
foregoing paragraphs as if fully set forth herein.
77.
During the Class Period, the Individual Defendants participated in the operation
and management of CRESUD, and conducted and participated, directly and indirectly, in the
conduct of CRESUD's business affairs. Because of their senior positions, they knew the adverse
non-public information regarding CRESUD's business practices.
78.
As officers and/or directors of a publicly owned company, the Individual
Defendants had a duty to disseminate accurate and truthful information with respect to
32
CRESUD's financial condition and results of operations, and to correct promptly any public
statements issued by CRESUD which had become materially false or misleading.
79.
Because of their positions of control and authority as senior officers, the
Individual Defendants were able to, and did, control the contents of the various reports, press
releases and public filings which CRESUD disseminated in the marketplace during the Class
Period. Throughout the Class Period, the Individual Defendants exercised their power and
authority to cause CRESUD to engage in the wrongful acts complained of herein. The Individual
Defendants therefore, were "controlling persons" of CRESUD within the meaning of Section
20(a) of the Exchange Act. In this capacity, they participated in the unlawful conduct alleged
which artificially inflated the market price of CRESUD securities.
80.
Each of the Individual Defendants, therefore, acted as a controlling person of
CRESUD. By reason of their senior management positions and/or being directors of CRESUD,
each of the Individual Defendants had the power to direct the actions of, and exercised the same
to cause, CRESUD to engage in the unlawful acts and conduct complained of herein. Each of the
Individual Defendants exercised control over the general operations of CRESUD and possessed
the power to control the specific activities which comprise the primary violations about which
Plaintiff and the other members of the Class complain.
81 .
By reason of the above conduct, the Individual Defendants are liable pursuant to
Section 20(a) of the Exchange Act for the violations committed by CRESUD.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against Defendants as follows:
33
A.
Determining that the instant action may be maintained as a class action under
Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class
representative;
B.
Requiring Defendants to pay damages sustained by Plaintiff and the Class by
reason of the acts and transactions alleged herein;
C.
Awarding Plaintiff and the other members of the Class prejudgment and post-
judgment interest, as well as their reasonable attorneys' fees, expert fees and other costs; and
D.
Awarding such other and further relief as this Court may deem just and proper.
DEMAND FOR TRIAL BY JURY
Plaintiff hereby demands a trial by jury.
Dated: April 29, 2016
.com
Counsel/or Plaintiff
34
Certification and Authorization of Named Plaintiff Pursuant to
Federal Securities Laws
The 1nd1v1dual or 1nst1tut1on listed below (the "Plaintiff') authonzes and upon execution of the
accompanying retainer agreement by
to file an action under the federal securities laws to recover damages and to seek other relief
against Cresud Sociedad An6rnma Comercial lnmobil1aria. Financ1era y Agropecuaria.
prosecute the action on a contingent fee basis and will advance all costs and
expenses The Cresud Soc1edad An6n1ma Comerc1al . lnmob1liaria, F1nanciera y Agropecuaria.
Retention Agreement provided to the Plaintiff 1s incorporated by reference . upon execution by The
First name:
Middle initial:
Last name:
Address:
City:
State:
Zip:
Country:
Facsimile:
Phone:
Email:
Plaintiff cert1fes that:
. Plaintiff has reviewed the complaint and authorized its filing.
2. Plaintiff did not acquire the security that 1s the subJect of this action at the direction of plaintiff's
counsel or in order to participate in this private action or any other litigation under the federal
securities laws.
3. Plaintiff is willing to serve as a representative party on behalf of a class. including providing
testimony at deposition and trial. if necessary.
4. Plaintiff represents and warrants that he/she/it is fully authorized to enter into and execute this
certification.
5. Plaintiff will not accept any payment for serving as a representative party on behalf of the class
beyond the Plaintiffs pro rata share of any recovery, except such reasonable costs and
expenses (including lost wages) directly relating to the representation of the class as ordered or
approved by the court.
6. Plaintiff has made no transaction(s) during the Class Period in the debt or equity securities that
are the subject of this action except those set forth below:
Acquisitions:
Type of Security
Common Stock
Buy Date
07/16/15
# of Shares
800
Price per Share
13.14
7 . I have not served as a representative party on behalf of a class under the federal securities laws
during the last three years except if detailed below. [ 1
I declare under penalty of pequry. under the laws of the
United States. that the information entered 1s accurate:
YES
Certification for
(cont.)
By clicking on the button below, I intend to sign and execute
this agreement and retain the
. to
proceed on Plaintiff's behalf. on a contmgent fee basis.
YES
Signed pursuant to California Civil Code Section 1633.1, et seq. - and the Uniform Electronic
Transactions Act as adopted by the various states and territories of the United States
Date of signing: 04/25/2016

CIVIL COVER SHEET

Transcription

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