Evolution hit with lawsuit for alleged securities fraud

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The lawsuit accuses Evolution of engaging in securities fraud or “other unlawful business practices”, with the motion deadline set for 25 March. Pomerantz is seeking to establish whether there was any wrongdoing from Evolution during the class period of 14 February 2019 to 25 October 2023.

The suit lists several incidents that occurred during the class period that had an impact on Evolution’s share prices.

These include a January 2022 report by Analyst Generation Limited, which was made available to certain investors. Resulting media coverage stated the report outlined two key allegations – that a portion of Evolution’s revenue “could be at risk due to future regulatory clampdowns” and that Evolution had been “exposed to revenues from what we believe to be illegal gambling activities”.

After the report’s release, Evolution’s American Depository Shares (ADS) dropped by 14.68% across the following three trading sessions.

Pomerantz also noted Evolution’s Q3 results and subsequent earnings call in October 2023, in which the company highlighted delays to the opening of new studios and stagnation in revenues for some sectors. In response to the news, Evolution’s ADS price fell by 7.61%.

Evolution has not yet published a comment on the accusations.

Separate lawsuit accuses Evolution of misleading investors

In January, Federman & Sherwood filed another lawsuit against Evolution in the United States District Court for the Eastern District of Pennsylvania. The suit is accusing the company of deceiving investors in relation to its growth trajectory and compliance.

That suit stretches over the same class period as Pomerantz’s, alleging Evolution made untrue or misleading statements in regards to its growth potential, customer compliance, the company’s compliance and the effect of non-compliance on revenue.

In February, the New Jersey Division of Gaming Enforcement (NJDGE) announced it had dropped another case against Evolution. This was following the conclusion of an investigation into potential misconduct dating back to November 2021.

Allegations were made that Evolution products were made available in countries that were under US trade sanctions. However, the NJDGE decided not to take any action, dropping the case.

Evolution’s 2023 net profit tops €1bn

Despite some regulatory concerns, revenue growth in Evolution’s live sector ensured the business reached net 2023 profit of €1.07bn (£913.5m/$1.16bn).

Revenue was up 23.5% year-on-year to €1.80bn, with live casino responsible for 84.7% of this total at €1.52bn.

Despite its live casino growth, chief executive Martin Carlesund recently highlighted concerns over Evolution’s ability to keep pace with demand. Carlesund stated Evolution would look to open new games studios to help meet the rise in interest.

“We have increased the pace of our studio expansions in the fourth quarter and expect to continue into 2024,” Carlesund said. “We launched a new studio in Bulgaria and have initiated the project to build a second studio in Colombia.”

RNG (random number generator) gaming revenue climbed 2.6% to €275.3m during 2023. However, the sector’s revenue fell 3.7% to €69.8m in Q4. In response, a Regulus Partners analyst slammed Evolution’s strategic performance in RNG gaming, labelling it “embarrassing”.

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