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id: 801

Applied Digital Corporation (APLD) Misconduct Case

N.D. Texas
Case number
13 Apr 2022
Class period Start
26 Jul 2023
Class period End
11 Oct 2023
Lead Plaintiff motion deadline
  • In July 2023, Bear Cave and Wolfpack Research issued reports alleging Applied Digital of related party transactions, conflicts of interest, and business overestimations.
  • $APLD fell over 14%, damaging shareholders.
  • Investors filed a complaint in court!
On July 26, 2023, The Friendly Bear published a report on Applied Digitaexpressing the view that B. Riley "is controlling managerial decisions at Applied Digital to the detriment of Applied Digital shareholders"; that Applied Digital's board does not "meet the independence requirements under Nasdaq rules and . . . is essentially controlled by B. Riley."

The Friendly Bear report also alleged that clear conflicts of interest undermined the Company's purported investigation into sexual harassment claims made against Cummins the previous month, noting that the manner in which the claims were summarily dismissed by Applied Digital's Audit Committee could subject Applied Digital to "significant legal blowback."

On this news, $APLD fell over 3%, damaging investors.
  • In April 2022, Applied Digital conducted its IPO. The primary underwriter of the IPO was B. Riley Securities. On April 13, 2022, $APLD began trading on NASDAQ.
  • The Offering Documents described several close connections between Applied Digital and B. Riley. For example, in the "conflicts of interest" section of the IPO Prospectus, Applied Digital stated that, in August 2021, the Company's CEO, Wesley Cummins, sold a majority interest in a registered investment adviser controlled by Cummins to B. Riley Financial, and thereafter became President of B. Riley Asset Management.
  • As a company publicly traded on the NASDAQ, Applied Digital is required to comply with the Listing Rule, which states that a majority of the Company's board of directors must be comprised of independent directors.
In July 2023, market analysts began scrutinizing Applied Digital's business model as well as assembling the various connections between Applied Digital and B. Riley into a cogent picture. On July 6, 2023, market analysts Wolfpack Research and The Bear Cave published reports on Applied Digital.
  • The Wolfpack report raised questions about the viability of the Company's business model, stating, for example, that the Company "pumped up its stock in May by claiming to pivot from a floundering business hosting bitcoin miners, to becoming a low-cost AI Cloud service provider," and "the explosion of interest in AI after the emergence of Chat GPT has predictably attracted the worst promoters to peddle fake AI wares to credulous investors, and our analysis indicates that APLD is one of these grifters because it is not an AI company."
  • The Bear Cave report detailed Applied Digital's problematic corporate history, alleging that "Applied Digital relies on puffery over substance and is a perfect case study on our market's bizarre underbelly of reverse mergers, microcaps, and shell companies."
Following the publication of the Wolfpack and Bear Cave reports, $APLD fell 14.16%.

Taking all representations into account, Investors have reasons to suspect that APLD :
  • overstated the profitability of its data center hosting business and its ability to successfully transition into a low-cost AI Cloud services provider.
  • failed to disclose that the Board of Directors was not independent within the meaning of NASDAQ listing rules.
Case Status
Lead Plaintiff Appointed
Alleged Offence
Misleading Statements
Financial Misrepresentation
Failure to Disclose
Suspected Party
Investment Bank
Service Provider
Security Type
Trade Direction
Shock Event Date
26 July 2023
Filing date
12 August 2023
Lead Plaintiff Deadline
11 October 2023
Hon. Ada Brown
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