Howard v. Liquidity Services Inc.

Updated: December 21, 2016
Status: Ongoing Case

We beat the defendants’ second attempt to dismiss the complaint, demonstrating the high caliber of the Firm’s investigative practices.

On October 14, 2014, Labaton Sucharow was appointed co-lead counsel in this securities class action against Liquidity Services, Inc. (Liquidity Services), an online auction marketplace that provides its customers with a platform to buy and sell wholesale, surplus, and salvage goods such as industrial machinery, equipment, materials, vehicles, and inventory.

The complaint alleges that Liquidity Services misrepresented its financial condition between February 1, 2012 and May 7, 2014 (the class period) through materially false and misleading statements related to, among other things, its current and future profitability, the performance of recent acquisitions, and the adverse effects of a decline in business with one of its major clients, the U.S. Department of Defense.

During the class period, Liquidity Services touted its growth and profitability based on two pillars, growth through sustained margins and growth through the company’s acquisition strategy. In reality, Liquidity Services’ margins and revenues were deteriorating and it was having serious problems integrating its acquisitions. The complaint alleges that as a result of these problems, on a number of occasions Liquidity Services reported earnings issues, lower projections, and poor results, which drove down the stock price. The company blamed various factors for its disappointing results, including volatility in the economic environment, weak commodity prices, slower than expected roll-outs of new client programs, and the effect high unemployment and increased payroll taxes had on its customers, but failed to disclose the extent of the issues with its two growth pillars in both its retail and commercial capital assets divisions.

On March 31, 2016, the court denied in part the defendants’ motion to dismiss, specifically regarding alleged misrepresentations of the financial performance of Liquidity Services’ retail division. The lead plaintiffs filed their motion for class certification on September 2, 2016.

On December 21, 2016, the court denied the defendants’ motion for reconsideration of the complaint. The defendants submitted declarations from two confidential witnesses purportedly disavowing allegations in the complaint, and claimed two other confidential witnesses disavowed allegations during depositions. In the lead plaintiffs’ opposition, the Firm and co-lead counsel submitted overwhelming support from 13 confidential witnesses supporting the allegations in the complaint. We also demonstrated that the four confidential witnesses the defendants’ relied on either did not truly recant (they mostly supported the complaint allegations) or were shown to have motivations to alter their stories. The judge ruled within two hours of the defendants’ reply, denying their motion.

The case is Howard v. Liquidity Services Inc., No. 14-cv-1183 (D.D.C.). The lead plaintiffs are Newport News Employees’ Retirement Fund and Caisse de dépôt et placement du Québec. Labaton Sucharow represents Newport News Employees' Retirement Fund. The defendant is Liquidity Services, Inc.