UPDATE 1-Investor lawsuit accuses Lions Gate of concealing SEC probe

Fri Jul 11, 2014 6:13pm EDT

(Adds Lions Gate comment, paragraph 4)

By Jonathan Stempel

NEW YORK, July 11 (Reuters) - Lions Gate Entertainment Corp, the studio behind the "Hunger Games" movies, was hit with a shareholder lawsuit on Friday that alleges it fraudulently concealed a U.S. regulatory probe into whether it deceived shareholders as it fought off a hostile takeover by billionaire Carl Icahn.

The lawsuit, filed in U.S. District Court in Manhattan, claims that shareholders suffered losses after Lions Gate , which also produces TV shows such as "Mad Men," on March 13 agreed to pay $7.5 million and admit wrongdoing to settle the probe by the U.S. Securities and Exchange Commission.

That accord was the first time in roughly three decades that the SEC had brought an enforcement case against a target of a hostile tender offer. Lions Gate's share price fell 8.8 percent in the three trading days after the settlement.

A Lions Gate spokesman said in an email that the lawsuit is "wholly without merit." Lions Gate is based in Vancouver, British Columbia, and has offices in Santa Monica, California.

The SEC case arose from a series of transactions in July 2010 that boosted the ownership stake of a management-friendly director, Mark Rachesky, and diluted Icahn's stake.

According to the SEC, Lions Gate misled investors by claiming the transactions were part of a plan to reduce debt, not to block a takeover, and also failed to get shareholder approval as required under a New York Stock Exchange rule.

Rachesky is now Lions Gate's chairman; Icahn lost his proxy battle.

The plaintiff in the shareholder lawsuit, Laborers Pension Trust Fund-Detroit & Vicinity, said Lions Gate knew for more than a year before the settlement that the SEC and NYSE were looking at the transactions.

But it said the company deliberately concealed it, including on a Feb. 7, 2014, conference call when an analyst asked why the company had recently boosted a reserve for legal costs.

The lawsuit said Lions Gate's actions fraudulently inflated its stock price. It seeks class-action status on behalf of shareholders from Feb. 11, 2013, to March 13, 2014.

Four Lions Gate officials, including Chief Executive Jon Feltheimer, are also defendants. Icahn is not a defendant.

The case is Laborers Pension Trust Fund-Detroit & Vicinity v. Lions Gate Entertainment Corp et al, U.S. District Court, Southern District of New York, No. 14-05197. (Reporting by Jonathan Stempel in New York; Editing by Leslie Adler and Ken Wills)

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