A class action lawsuit was recently filed against Pure Cycle Corporation, accusing the water resource management company of securities fraud. The lawsuit alleges that Pure Cycle misled investors about the demand for its water assets and services.
Background on Pure Cycle
Pure Cycle is a Denver-based company that develops water resources and provides wholesale water and wastewater services. The company has significant water assets in the Denver metro area, including long-term contracts to supply water to customers.
Pure Cycle went public in 1995 and trades on the NASDAQ stock exchange under the ticker symbol PCYO. The company has touted the value of its water assets and contracts to investors.
Allegations of Misleading Statements
The class action lawsuit alleges that Pure Cycle made false and misleading statements from May 2017 to August 2018 regarding the demand for its water assets and services.
Specifically, the lawsuit claims Pure Cycle misrepresented that it had a ready market of buyers for its water assets. However, when the company put 23,000 acre-feet of its water up for auction in March 2018, it received no bids that met the minimum reserve price.
Furthermore, the lawsuit alleges Pure Cycle misled investors by claiming a backlog demand of $500 million for its water when in reality the backlog was only a fraction of that amount.
Stock Price Declines
The complaint states that when the truth about Pure Cycle’s lack of demand emerged, the company’s stock price fell over 40%, causing harm to investors.
The stock declines occurred after Pure Cycle revealed the lack of bids for its water assets and slashed its revenue guidance by over 50% due to lack of demand.
Arguments for Alleged Violations
The class action lawsuit argues that Pure Cycle violated Sections 10(b) and 20(a) of the Securities Exchange Act through its alleged misstatements about demand for its water assets and services.
By touting water demand that did not exist, the lawsuit contends Pure Cycle artificially inflated its stock price during the class period. When the truth was revealed, shareholders experienced significant losses from the stock declines.
The lawsuit seeks damages for shareholders from the company and its senior management who made the misleading statements. Damages could amount to millions of dollars if the case succeeds.
Status of the Lawsuit
The Pure Cycle class action lawsuit was filed in the U.S. District Court for the District of Colorado in early 2022. The case is still in the early stages.
Pure Cycle has stated it denies any allegations of wrongdoing and will vigorously defend itself. The company maintains it made no misleading statements to investors about demand.
It may take over a year for the lawsuit to proceed through the legal process to a potential resolution. These types of shareholder lawsuits often result in settlements if strong evidence of violations is uncovered during the discovery phase.
The Pure Cycle litigation serves as a reminder of the risks to shareholders when companies engage in alleged securities fraud. Investors should research companies carefully before investing to avoid potential losses from misleading statements. Look into [Pure Cycle class action lawsuit] for more details on this case as it develops.
