Seagate Faces Class Action Lawsuits After Violating US Sanctions By Selling To Huawei
Hard drive maker Seagate was recently fined $300 million by the US Commerce Department for violating US sanctions by imposing export controls on products sold by Huawei. But this may only be the tip of the iceberg. In the past two weeks, several law firms have filed class-action lawsuits against Seagate on behalf of shareholders, alleging that they were duped into selling millions of hard drives to banned company Huawei.
These sales generated $1.1 billion in revenue, of which Seagate had an estimated profit of $150 million. After paying $300 million for these violations, the company's losses will continue to mount as class action lawsuits continue alleging that Seagate made materially false and/or misleading statements to shareholders about its business relationship with a Chinese technology company.
The US government banned Huawei from selling a wide range of devices in 2019. Seagate's competitors Western Digital and Toshiba immediately stopped supplying hard drives to Huawei. However, Seagate said sales of its hard drives were legal despite Western Digital's insistence that such devices were subject to the US ban.
Seagate sold 7.4 million Huawei units from August 2020 to September 2021 and even signed a meaningless contract to be "Huawei's sole supplier" (no one else will sell to Huawei). The matter was eventually brought to the attention of a US senator, who called for an investigation. This ultimately led to Seagate being fined $300 million (paid quarterly in $15 million increments over five years) by the US Commerce Department.
Such restrictions have a negative impact on profitability or shareholder value. As a result, several law firms are currently seeking lead plaintiffs in a class action lawsuit filed against Seagate. In the last two weeks we have received lead plaintiff inquiries from 14 law firms (1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14) so there is no dearth of legal representation for the victims.
To qualify, the plaintiff must have suffered losses on Seagate stock purchased between September 15, 2020 and October 25, 2022. The court will select a lead plaintiff on September 8, 2023, after which a class action lawsuit against Seagate will be filed. The lawsuit alleges that Seagate made false and/or misleading statements about:
the nature and extent of Seagate's sales of hard drives to Huawei, including the fact that Seagate's sales to Huawei increased significantly immediately after the BRI rules took effect and that Seagate's competitors ceased selling to Huawei; And
This original description of Seagate's hard drive manufacturing process, including the use of US software and technology in "core" manufacturing processes, violated BIS export regulations to Huawei.
As a result, Seagate clearly violated BRI export regulations, prompting an ongoing investigation by the US Department of Commerce and several million dollars in fines and penalties against Seagate.
Accordingly, at all relevant times, Defendants' affirmative statements about the Company's business, operations and prospects were materially misleading and/or without any reasonable basis.
The lawsuit comes at what could easily be described as a difficult time for Seagate, as an industry downturn recently prompted the company to announce massive layoffs. We've reached out to Seagate for comment and will update the information as needed.
