Franklin Wireless Hit with Securities Class Action After Hotspot Device Recall Triggered Stock Drops

New to ClassAction.org? Read our Newswire Disclaimer

A proposed class action has been filed over drops in stock price allegedly linked to Franklin Wireless Corp. and its top executives’ failure to disclose to investors that the company’s wireless hotspot devices suffered from potentially dangerous battery issues that would cause Franklin’s customers to recall the products.

Per the 21-page lawsuit out of California, the defendants issued “materially misleading” statements with regard to Franklin’s business, operations and prospects, which served to artificially inflate stock prices during the “class period” and injure investors when the revelation of their “wrongful acts and omissions” caused a “precipitous decline” in the value of the company’s securities.

Franklin purports to be a leading provider of mobile hotspots, routers, trackers and other intelligent wireless solutions, the case begins. Per the lawsuit, Franklin included in reports filed with the SEC between September 2020 and February 2021 certain “risk factors” that explained the company depends on “a small number of customers for a significant portion of [its] revenues,” and warned that Franklin’s agreements with customers do not obligate them to purchase any quantity of its products.

According to the case, however, the statements in Franklin’s SEC reports were “materially false and/or misleading” in that they failed to disclose certain adverse facts about the company’s business operations and prospects. More specifically, the lawsuit claims Franklin failed to mention that its hotspot devices suffered from battery issues that caused them to overheat and present a potential fire hazard and that, as a result, it was “reasonably likely” that the company’s corporate customers would recall the devices, thereby injuring Franklin’s reputation.

The truth began to emerge on April 1, 2021, when Franklin stated it had “been notified of reports of battery issues” in some of its wireless hotspot devices, the lawsuit relays. Upon this news, the company’s stock price fell 1.65 percent “on unusually heavy trading volume,” the case says.

The suit says the media began to report on April 8 that Verizon Wireless was recalling 2.5 million hotspot devices, including Ellipsis Jetpack mobile hotspots imported by Franklin and sold between April 2017 and March 2021, after discovering that the products’ lithium ion batteries can overheat and pose a fire risk.

Per the suit, news of the recall caused Franklin’s stock price to plummet 14 percent.

Franklin’s stock price fell another 23 percent the next day, April 9, when the company announced that its customer, Verizon Wireless, was issuing a voluntary recall of the hotspot devices, adding that “[a]t this time, fewer than 20 report [sic] of trouble have been received with over 2 million devices in [sic] sold over the last three and a half years,” the complaint says.

The lawsuit claims Franklin’s failure to warn investors of the battery problems and impending recall artificially inflated the company’s stock price and injured investors when the news caused the prices to drop.

The case looks to represent persons and entities who purchased or otherwise acquired Franklin Wireless Corp. securities between September 17, 2020 and April 8, 2021 and were damaged thereby.

Get class action lawsuit news sent to your inbox – sign up for ClassAction.org’s newsletter here.