Equinix, a data center developer, has agreed to a $41.5 million settlement in a class action lawsuit involving its stockholders. The class alleged that Equinix mischaracterized routine expenses as nonrecurring capital costs to qualify executives for bonuses of $150 million over five years. The Uniformed Sanitationmen's Association Compensation Accrual Fund recently filed a motion for preliminary approval of the settlement, which involves parties who purchased Equinix stock between May 2019 and March 2024. The case is Uniformed Sanitationmen's Association Compensation Accrual Fund v. Equinix Inc. et al., Case Number 3:24-cv-02656, U.S. District Court for the Northern District of California.
The pension fund filed suit against Equinix in May 2024, claiming that the company labelled maintenance expenses, including batteries and lightbulbs, as nonrecurring capital costs. By classifying the expenses in this manner, Equinix's former CEO and current CFO qualified for bonus stock awards for exceeding adjusted funds from operations (AFFO) targets.
The allegations by the pension fund stemmed from a report by now-defunct Hindenburg Research, which claimed in March 2024 that Equinix was misclassifying its capital spending to increase AFFO figures artificially. Hindenburg based its report on interviews with numerous employees, competitors, and industry experts. The report dropped Equinix's stock price from $844.58 per share on March 19, 2024, to $824.88 per share on March 20, 2024. After the U.S. Department of Justice launched an investigation into the Hindenburg report, the company's stock price declined even further.
The settlement would allow the pension fund to recover 18% of the stock damages on Equinix shares. Attorney fees would comprise 25% of the settlement amount, plus up to $300,000 in expenses. The parties reached the deal through court-ordered mediation.
In January 2025, U.S. District Judge Vince Chhabria found that the pension fund correctly claimed that the Hindenburg report caused the drop in Equinix's stock price. However, the judge tossed another claim that the company was inflating the power capacity of its data centers as irrelevant.
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