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Judge says GLG Life Tech did not mislead shareholders over ‘doomed’ relationship with Cargill

By Elaine WATSON , 06-Feb-2014

A judge has dismissed a shareholder lawsuit filed in 2011 against stevia firm GLG Life Tech Corporation for alleged failures to disclose the decline of its relationship with Cargill, then its largest customer.

Investor relations chief Stuart Wooldridge told FoodNavigator-USA that the “timing of the court’s order came as a surprise”, although GLG (which is based in Vancouver and conducts its business in China), was always confident it would be exonerated.

He added: “We anticipated the positive result, but good to get exoneration in the courts.  It will further reassure our customers in the plant derived sweetener industry that after a rocky patch, we are on track.”

Plaintiffs alleged that GLG led investors to believe that GLG and Cargill still had a good working relationship - when in fact relationship was ‘doomed’

The lawsuit was filed in December 2011 in New York by plaintiff Joseph Lardy, consolidated with a similar case (Lattimore v. GLG Life Tech Cop) the following year and amended in March 2013.

According to the plaintiffs, GLG became aware that its contractual agreement with Cargill was “doomed” but failed to notify the market of this fact in a timely fashion.

On a March 31, 2011 conference call with industry analysts, they added, GLG chairman and CEO Luke Zhang said that GLG and Cargill “are in a good relationship now”, while chief finance officer Brian Meadows said that Cargill "told us they've got sufficient inventories probably for the rest of this year. But their business continues to grow which is really the catalyst for more product from GLG”.

Such statements led investors to believe, erroneously, that GLG and Cargill still had a good working relationship, according to the lawsuit.

Judge: Plaintiffs “failed to sufficiently allege defendants misled the market with respect to the declining GLG-Cargill relationship”

However, in her February 3, 2014, court order, US District judge Katherine B. Forrest begged to differ.

For a start, said Forrest, in early 2011, GLG had made it clear to the market that Cargill was its largest and most important customer, and told investors that as of March 31, 2011, Cargill had purchased all it was going to purchase from GLG for that year.

On the same day, GLG also informed the SEC that it had earned 90% of its revenues in 2009 from Cargill, 47% of its revenues in 2010 from Cargill, and that it expected revenues derived from Cargill to decrease even further in 2011, she added.

When asked on the same March 31 earnings call whether GLG's business from Cargill was "shrinking," Meadows stated: "We have contract [sic] with them at this point which is probably the third of what we did with the last year."

Owing to these clear and timely disclosures, the plaintiffs had “failed to sufficiently allege defendants misled the market with respect to the declining GLG-Cargill relationship” concluded Forrest, granting GLG’s motion to dismiss the case.

Meanwhile, she added, "Plaintiffs have failed to allege that defendants had a plausible motive to defraud investors. While plaintiffs initially alleged that defendants had a motive to mislead the market because they wanted a strong offering [to raise money to fund the business], this contention is plainly contradicted by plaintiffs' proffered timeline: defendants allegedly began misleading the market on March 31, 2011, but the Offering ended on February 23, 2011."

GLG back on track

GLG’s stock price plummeted in late 2011 after bosses reported a sharp drop in sales and revealed they had renegotiated their 10-year supply agreement with Cargill such that it would no longer be obliged to purchase the bulk of its stevia supply from GLG.  

In May 2012, GLG’s shares were suspended after it was issued with a cease and desist order from the BC Securities Commission for failing to file its full-year 2011 accounts by the March 30, 2012 deadline.

However, things are now firmly back on track, says the firm, which resumed trading on the Toronto Stock Exchange (TSX) last summer and is now focused primarily on selling to international customers who buy stevia on a recurring basis rather than selling to other stevia providers.

In November 2013, GLG posted a net loss of $14.3m in the third quarter, but said it was making solid progress in its collaboration with COFCO, China's largest food company, to develop foods and beverages with stevia that will reach "every consumer in every market".

Projects include developing reduced sugar dairy products for the COFCO Mengniu Dairy Subsidiary and multiple healthy foods and beverages for COFCO’s China Foods subsidiary, said GLG CEO Dr. Luke Zhang.

We continue to develop our relationship with COFCO, and will be their supplier as they introduce stevia sweetened products. As the largest food company in China, their distribution channels reach every consumer in every market.”  

The case number is: 1:11-cv-09150-KBF

 * Separately, GLG announced this week that it has filed a patent with the State Intellectual Property Bureau in China for its proprietary process for extraction and production of high purity Luo Han Guo (monk fruit) extracts as well as Luo Han Guo formulations used in food and beverage applications. It also plans to seek International Patent Protection under the Patent Cooperation Treaty for this patent. More to follow.

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