Logan v. ProPetro Holding Corp., et al.

Court: United States District Court for the Western District of Texas
Case Number: 7:19-cv-217-DC
Class Period: 03/17/2017 - 03/13/2020
Case Leader: James A. Harrod
Case Team: Alexander T. Payne, Nicole Santoro, William E. Freeland

In re ProPetro Holding Corp. Securities Litigation (“ProPetro” or “the Company”) is a securities class action lawsuit alleging claims under Sections 10(b) and 20(a) of the Exchange Act and Sections 11 and 15 of the Securities Act on behalf of investors who purchased ProPetro common stock between March 17, 2017 and March 13, 2020, inclusive (the “Class Period”), or purchased ProPetro common stock in or traceable to the Company’s March 17, 2017 initial public offering (“IPO”).  Defendants are ProPetro and certain of its current/former executives: Dale Redman (CEO), Ian Denholm (former Chief Accounting Officer), Jeffrey Smith (former CFO, now Chief Administrative Officer), Mark Howell (former general counsel), and Spencer Armour (former Chairman of the Board and current Board member) (collectively, “Defendants”).  The case is pending in the Middle District of Texas before District Judge David Counts.  In December 2019, the Court appointed Nykredit as Co-Lead Plaintiff and BLB&G as Co-Lead Counsel.  Lead Plaintiff filed the Amended Complaint on February 13, 2020. Thereafter, in response to additional relevant disclosures from the Company, Lead Plaintiff filed the Second Amended Complaint on April 14, 2020, and the Third Amended Complaint on July 30, 2020.  Pursuant to the schedule entered by the court, Defendants filed their motions to dismiss the Third Amended Complaint on August 31, 2020, and Lead Plaintiff filed an omnibus opposition to those motions to dismiss on September 30, 2020.  Defendants filed their replies to Lead Plaintiff’s opposition brief on October 30, 2020.  On September 13, 2021, the Court substantially denied Defendants’ motions to dismiss. The case is now in discovery. On October 22, 2021, Defendants filed a motion to strike. Plaintiffs filed their opposition on November 5, 2021, and Defendants filed their reply on November 12, 2021. On March 18, 2022, the Court granted the motion to strike, striking certain allegations in the Third Amended Complaint. The Court also entered a case schedule in that order. Plaintiffs filed their motion for class certification on May 27, 2022; Defendants filed their opposition on July 22, 2022; and Plaintiffs’ reply is due on August 29, 2022. Fact discovery is to be completed by September 16, 2022, and expert discovery is to be completed by December 23, 2022.

Lead Plaintiff’s complaint alleges that Defendants made representations in their class period SEC filings and IPO offering documents that: (1) all related party transactions were disclosed; (2) particular processes and procedures were followed to review and authorize related party transactions; (3) the Company’s internal controls and disclosure controls and procedures were adequate; and (4) pursuant to SOX, any deficiencies or material weaknesses in internal controls were disclosed in the Company’s SEC filings.  Contrary to these representations, in August 2019, the Company disclosed that it was delaying the filing of its second quarter 2019 Form 10-Q due to a previously undisclosed internal audit committee investigation into expense reimbursements and related party transactions.  The audit committee found that certain expenses totaling $370,000 reimbursed to the CEO and CFO were incorrectly recorded as company expenses and were appropriately allocable to the officers individually.  The audit committee found further that the investigation would likely conclude that there were material weaknesses in the Company’s internal controls and procedures.  Later disclosures confirmed at least two material weaknesses, and one related party transaction involving a real estate deal with the Company’s former Chief Accounting Officer valued at approximately $3.6 million.  The Company also disclosed that its former CEO pledged his shares of ProPetro stock as collateral for personal loans in violation of ProPetro’s Code of Ethics and Conduct, among other agreements. The CEO and CFO have both departed the Company.  In November 2019, the Company confirmed rumors that the SEC had commenced an investigation into the Company arising from its internal financial controls, disclosures, and financial reporting.  While there have been no further disclosures concerning the status of the SEC investigation, on June 15, 2020, the Company filed its Form 10-K for the year ended December 31, 2019, which included the final results of the internal investigation.  Among other things, the investigation found that ProPetro’s internal controls suffered from several material weaknesses during the Class Period which resulted in the concealment of improper related-party transactions and share pledges among other prohibited behavior.