Canadian satellite manufacturer MDA Space Inc. is embroiled in a proposed class-action lawsuit, with plaintiffs alleging that company executives engaged in misleading practices and insider trading concerning the announcement and subsequent withdrawal of a significant contract last summer. The claim, filed in Ontario Superior Court, seeks $340 million in damages from the company and its leadership, including CEO Mike Greenley.
Allegations of Misrepresentation and Insider Trading
The lawsuit, initiated by two shareholders, asserts that MDA failed to adequately inform investors about the risks associated with a $1.8 billion contract with U.S. telecommunications firm EchoStar Corp. to develop satellites for a low Earth orbit constellation. The contract announcement in early August led to an 18% surge in MDA’s stock price. However, the agreement collapsed a month later when EchoStar withdrew, citing the need to sell off wireless spectrum rights to SpaceX, resulting in a 25% drop in MDA’s share price on the day of the announcement.
Matthew Taylor, representing the plaintiffs, emphasised the importance of integrity in capital markets and fairness among investors. “This is a case about the integrity of the capital markets and fairness between different classes of investors,” he stated. The lawsuit names key executives, including CFO Guillaume Lavoie and board chair Brendan Paddick, alongside Greenley.
MDA’s Response to the Allegations
In a recent communication, MDA’s spokesperson, Amy MacLeod, rejected the claims as groundless and expressed the company’s commitment to contesting the allegations in court. “MDA Space strongly believes that all the claims that have been alleged are unfounded and without merit,” MacLeod stated, asserting that the company’s focus remains on its operational objectives and mission.
The plaintiffs contend that MDA’s leadership was aware—or should have been aware—of significant regulatory and financial pressures facing EchoStar prior to announcing the contract, yet failed to disclose these risks to investors. They further allege that during an analyst call, Greenley minimised concerns regarding the contract, describing potential risks as “very, very small.”
Insider Profits and Legal Ramifications
The lawsuit also claims that MDA executives, including Greenley, Paddick, and director John Risley, profited substantially from the company’s stock before the contract’s termination. Reports indicate that Greenley realised $35.7 million by exercising stock options just weeks before announcing the deal’s cancellation. In total, the executives collectively sold over $85 million worth of shares at peak prices, raising questions about the legality of their trades given the undisclosed material facts.
The plaintiffs argue that these trades violated securities laws, which prohibit insiders from trading when privy to undisclosed information that could materially affect stock prices. The lead plaintiffs, Robert Yoon and Liu Yizheng, are seeking compensation for losses incurred by investors who purchased shares between the contract’s announcement and its cancellation.
Next Steps in the Legal Process
The class-action lawsuit could encompass a broad array of investors, potentially numbering in the thousands, given the volume of MDA’s shares traded during the relevant period. Taylor highlighted that many additional potential class members have already expressed interest in joining the suit. The plaintiffs are now preparing to seek a certification order from the court, which would allow the case to proceed as a class-action suit. MDA is expected to file its official response shortly thereafter.
Why it Matters
This lawsuit marks a significant moment for MDA Space Inc. and the broader Canadian securities landscape, as it underscores the critical importance of transparency and integrity in corporate governance. With potential implications for investor trust and regulatory scrutiny, the outcome of this case could reshape how companies communicate major business decisions and manage insider trading risks in the future.
