A class action lawsuit was filed against MGP Ingredients, Inc. (MGPI) by Levi & Korsinsky on December 16, 2024. The plaintiffs (shareholders) alleged that they bought MGPI stock at artificially inflated prices between May 4, 2023 and October 30, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought MGP Ingredients stock during that period can click here to learn about joining the lawsuit.
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MGP Ingredients is an American alcoholic beverage and spirits maker of brown goods (Bourbon, whiskeys, and rye) and grain-neutral spirits such as vodka and gin. MGP Ingredients operates three segments, namely Distilling Solutions, Branded Spirits, and Ingredient Solutions.
The company’s claims about solid demand and well-maintained inventory for its brown goods (American whiskey and tequila) are at the heart of the current complaint.
MGP Ingredients’ Misleading Claims
According to the lawsuit, MGPI and three of its current and/or former senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about product inventory and demand from SEC filings and related material.
For instance, at the beginning of the Class Period in 2023, the ex-CEO stated in a press release that demand and sales for its brown goods were growing to record levels, backed by solid new distillate customer commitments, better pricing, and unexpected demand for spot purchases.
On the same day, in an earnings call, the ex-CEO reiterated that MGPI was witnessing strong demand in each of its three segments. The company was confident of maintaining a high level of operational efficiency and execution going forward.
Furthermore, in an earnings call dated November 2, 2023, the ex-CEO again noted the robust demand for its brown goods that was outpacing longer-term demand trends. The company expected the momentum to continue for the rest of the year.
Finally, in a February 22, 2024 press release, the new CEO mentioned that MGPI witnessed solid demand for new distillate and aged whiskey, pushing up the brown goods sale by 39% and 26% for Q4 and full year 2023, respectively, compared to the prior year.
However, subsequent events (discussed below) revealed that MGPI and the defendants wilfully misled investors about the demand momentum for its brown goods and the related inventory levels.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the solid demand for its brown goods category and inventory levels.
The information became clear before the markets opened on October 31, 2024, when MGPI released its Q3 FY24 results. The company admitted that it expects its excess inventories to have a worse-than-anticipated impact on its sales in 2025. This forced the company to scale back operations and save costs. The news led to a slew of negative analyst reactions and price target cuts for MGPI stock. Following the news, MGPI stock fell 14.7%.
To conclude, the defendants allegedly misled investors about the sustained demand for its brown goods offerings and expected sales momentum in the future. In the past year, MGPI stock has plunged over 62%, causing meaningful damage to shareholder returns.
