According to the law firm press release, Horsehead, together with its subsidiaries, is a leading U.S. producer of zinc metal and a leading recycler of electric arc furnace dust. The Company derives the majority of its revenues from the sale of zinc. On February 2, 2016, Horsehead filed for protection under the bankruptcy laws and, therefore, is not named as a defendant in this action.
In September 2011, Horsehead began construction on a new, purportedly state-of-the-art zinc production facility located in Mooresboro, North Carolina (the “Mooresboro Facility”). The Company heralded a new zinc production process to be used at the Mooresboro Facility and stated that the new facility’s design would rely on sustainable manufacturing practices to produce zinc solely from recycled materials and allow the Company to produce new high-grade zinc varieties. Horsehead also stated that the Mooresboro Facility would produce over 155,000 tons of zinc metal annually once fully operational.
The complaint alleges that during the Class Period, defendants issued materially false and misleading statements and/or failed to disclose adverse information regarding Horsehead’s business, prospects and operations, including that: (1) construction defects at the Mooresboro Facility had left the facility unable to operate as planned; (2) operational problems at the facility were significant, pervasive and the result of fundamental engineering and operational defects; (3) the Company had not rectified the problems at the Mooresboro Facility and did not know how to rectify such problems, and as a result, production disruptions and tens of millions of dollars in costs related to these problems were likely and anticipated; (4) instead of permanently fixing problems at the Mooresboro Facility, the Company was employing expensive, temporary workarounds in order to achieve even limited production capacity, and as a result, the facility was not providing significant cost savings, but was instead causing the Company to spend cash at an unsustainable rate; (5) the Mooresboro Facility did not have an annual zinc production capacity of 155,000 tons and could not even sustainably achieve 50% of that capacity; (6) operational issues at the Mooresboro Facility were not improving, but in fact were deteriorating, as stop-gap measures used by the Company to boost production in the short term were unsustainable, untested, highly risky and causing decreased operational stability; and (7) the Company did not have sufficient liquidity, cash on hand and anticipated cash flows for general corporate purposes to sustain it through the full ramp-up of the Mooresboro Facility. As a result of these false statements and omissions, Horsehead securities traded at artificially inflated prices during the Class Period, with its stock price reaching a high of $20.70 per share.
On January 23, 2015, Horsehead conducted a secondary offering of 5.75 million shares of its common stock at $12.75 per share. As a result of the secondary offering, the Company generated approximately $73 million in gross offering proceeds.
Then, according to the complaint, Horsehead began to reveal various production problems at the Mooresboro Facility. On December 10, 2015, ratings agency Moody’s downgraded the Company’s corporate debt due to recurring problems at the Mooresboro Facility. By early January 2016, the Company had failed to make an interest payment to certain holders of the Company’s convertible senior notes and shortly thereafter defaulted on multiple credit agreements. On January 22, 2016, Horsehead announced that it was idling the Mooresboro Facility and laying off most employees at the site.
Then on February 2, 2016, Horsehead announced that it had initiated bankruptcy proceedings under Chapter 11 of the U.S. Bankruptcy Code. Subsequently, on February 11, 2016, trading in Horsehead stock was suspended and on February 23, 2016, the Company’s common stock was removed from listing on the NASDAQ stock exchange. At the time that trading in Horsehead stock was suspended the price of the stock had fallen to $0.08 per share.
A consolidated Complaint was filed on March 31, 2017. Defendants filed a Motion to Dismiss the consolidated Complaint on June 12. On March 28, 2019, the Court issued an Order denying Defendants' Motion to Dismiss.