Online sports apparel retailer SurfStitch is facing a possible $100 million class action by shareholders for allegedly failing to disclose the true state of its finances.
The open class action filed in the Supreme Court of Queensland accuses SurfStitch of breaching its disclosure obligations by not revealing that it was trading at a loss in August 2015.
Law firm Quinn Emanuel said SurfStitch instead covered up its loss with a series of transactions to boost revenue in December 2015.
The firm said SurfStitch should never have made or repeated its 2015/16 earnings guidance of $15 million to $18 million which instead turned out to be a $18.8 million loss.
The company's shares plummeted by 85 per cent following a series of profit downgrades that wiped out $500 million from its market value, the firm said.
SurfStitch shares between November 2015 and June 2016 went from $2.13 to 32 cents.
"Companies need to know that the free market depends on them being up front with investors," Quinn Emanuel Partner Damian Scattini said in a statement.
"Class actions like this send a powerful message to company boards that if you mislead investors, you will be held to account."
Backed by litigation funder Vannin Capital, the class action is open to anyone who purchased or held shares between August 27 in 2015, and June 8 in 2016.
SurfStitch said in a brief statement on Tuesday morning that it has not received any notice that class action has been filed against it.
The company's then executive leadership team have all left amid the turmoil, including co-founder Justin Cameron who stepped down as chief executive in March 2016.
He was replaced by co-founder Lex Pederson and Surfdome founder Justin Stone as joint chief executives, however they only lasted three months in the job before being replaced by the then chief operating officer Mike Sonand.
Surfstitch shares hit an all-time low of 6.9 cents on Monday - down from $2.13 in November 2015 - after the firm again downgraded its earnings guidance, said it will close its US office and expects its full-year loss to double.
Shares in the company dropped 0.6 cents to 6.88 cents on Tuesday.
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