Avaya allegedly misled investors about the company’s finances and management, per a lawsuit filed by bondholders in New York.
The claimants suggest that they lost over $125MN because of the "fraudulent" maneuvers of the Avaya board.
These alleged moves came before Alan Masarek took the CEO hotseat.
Indeed, the plaintiffs’ story of events starts in 2018, shortly after Avaya came out of bankruptcy.
At the time, Avaya issued $100MN in unsecured convertible notes. Such notes represent short-term debt that converts into company equity.
In May 2022, Avaya attempted to raise more money by refinancing the notes after reporting seemingly promising Q2 results.
At the time, former President and CEO Jim Chirico stated during an earnings call: "The significant progress we saw this quarter signifies our strategy is taking hold, and this shift is reflected in our revised second-half guidance."
After, Avaya contacted the plaintiffs – alongside other debtholders – to secure a new loan. In doing so, the suit claims that Avaya indicated its finances, management, and liquidity "were sound and that prospects were great."
With this guidance, many investors kept hold of their convertible notes, and reports suggest that some invested $80MN in new money into the business.
Then, when the loan closed, the situation began to unravel. Indeed, the plaintiffs – which include Angelo Gordon & Co., Canyon Partners LLC, and Mariner Investment Group – state the fraud “began to become apparent almost immediately afterwards.”
From there, the suit alleges that the business disclosed it had used the loan to buy back $129 million of notes from other investors.
Shortly after, Avaya fired Chirico, and in stepped Masarek, who then had the unenviable task of relaying the news that its revenues dropped by 13 percent year-over-year (YoY) in Q3.
Then, against convention, Avaya did not invite business analysts onto the call to dig deeper into the results or his comments.
Nevertheless, Masarek’s team brought in advisors for an internal probe of its earnings, which – according to Yahoo! Finance – missed previous forecasts for Q3 by 50 percent.
Unfortunately, much of the damage had been done, with its shares plunging by 98 percent since February 2022.