A proposed class action claims Six Flags investors were injured when the company revealed that its plans to build theme parks in China were "in jeopardy," despite earlier assurances of the projects' promising outlook.
A proposed class action lawsuit alleges the stock prices for Six Flags Entertainment Corporation were artificially inflated between April 2018 and January 2020 as a result of the company and its top executives misleading investors with regard to the success of projects to build Six Flags-branded theme parks in China. The plaintiff, a union pension fund, claims stockholders were injured when the defendants revealed that the projects were “in jeopardy,” triggering a drop in stock price.
The timeline in the lawsuit begins in June 2014, when Six Flags announced a partnership with Chinese real estate developer Riverside Investment Group Co. Ltd. to build multiple Six Flags-branded theme parks in China. Over the next few years, the defendants allegedly touted the projects’ successful outlook, stating in earnings calls that the company was “very confident” in the partnership and that licensing agreements between Six Flags and Riverside would “super charge revenue growth.” The lawsuit argues that these statements were misleading in that Six Flags “knew or recklessly disregarded” that the licensing agreements with Riverside would not be as lucrative as the defendants represented to investors.
The truth began to emerge in February 2019, according to the complaint, when Six Flags “surprised” investors by announcing a $15 million decrease in revenue for the fourth quarter of 2018 due to “macroeconomic issues in China” that purportedly impacted the Riverside projects. In response, the company’s stock price dropped over 14 percent, the suit says.
The case goes on to state that in October 2019, Six Flags further postponed the opening of the parks, admitting that “it’s unrealistic to think it’s going to be exactly as we’ve outlined.” Stock prices fell another 12 percent upon the revelation of this news, the case says.
Finally, the defendants announced on January 10, 2020 that the future of the China projects was “in jeopardy,” stating that Riverside had defaulted on a payment obligation due to continuing macroeconomic issues and the declining real estate market in China, the lawsuit states. According to the case, the company further disclosed that Six Flags would realize no revenue from the Riverside agreements in the fourth quarter of 2019 and expected a $1 million negative revenue adjustment, not to mention one-time charges totaling $10 million. This news caused Six Flags’ stock price to drop another 18 percent, the suit says.
The lawsuit claims a proposed class of investors who purchased Six Flags’ common stock between April 25, 2018 and January 9, 2020 were injured by the defendants’ conduct.