Cemtrex

Kurta Law is investigating brokers who made unsuitable recommendations of Cemtrex stock to their clients. FINRA Rule 2111 and Regulation Best Interest require brokers to tailor their investment recommendations to investors’ risk profiles.

If you lost money on your investment in Cemtrex, consider contacting a securities attorney. Brokerage firms may require investors to resolve their complaints through FINRA arbitration, which is designed to be a quicker and cheaper alternative to civil court. Contact us at (877) 600-0098 or email info@kurtalawfirm.com to speak to one of our securities attorneys for free today.

What is Cemtrex?

According to the prospectus, Cemtrex, Inc. (CETX) is a technology company that develops products for industrial, commercial, and consumer markets. Cemtrex divides its operations into three segments:

• Advanced Technologies: Virtual and augmented reality products, Internet of Things (IoT) devices, wearable tech, and smart devices like the SmartDesk.
• Electronics Manufacturing: Working in partnership with other electronics manufacturers, Cemtrex provides services including product design, printed circuit board production, and testing services.
• Industrial Technology: Services such as “rigging, millwrighting, in-plant maintenance, [and] equipment erection” for industrial clients, as well as sales of air filtration and environmental systems. Clients include companies in the food, construction, chemical, steel, cement, and mining industries.

The company also owns two subsidiaries. Cemtrex Advanced Technologies is the developer of the SmartDesk, a workstation aimed at executives. It also produces the smart technology products developed by Cemtrex Technologies Pvt. Ltd., a subsidiary which also develops virtual and augmented reality applications.

SEC Lawsuit

In 2021, the Securities and Exchange Commission filed charges against Cemtrex executive director Aron Govil alleging that he misappropriated over $7 million of investor funds between April 2016 and January 2018 and used these funds for personal expenses and business ventures. The SEC further alleged that Govil engaged in insider trading and scalping by “secretly selling Cemtrex stock while paying stock promoters to recommend that retail investors buy the company’s stock.”

Govil later settled with Cemtrex, surrendering his company securities and paying more than $1.5 million through a secured promissory note. He also entered a consent agreement with the SEC.

What are the Risks Associated with Cemtrex?

In the company’s prospectus, Cemtrex describes the various risks involved in its stock offering. Investors should be aware that some of these risks emerge from the company’s business strategy and others from market forces beyond Cemtrex’s control.

Reliance on Customers’ Businesses

As a technology company, Cemtrex’s success depends on the market demand for its products, the current regulatory environment, competition from larger companies, and customers’ ability to use its products and develop products of their own.

Cemtrex notes that most of its customers “do not commit to long-term production schedules,” which limits the company’s efficiency in manufacturing and inventory management. Complications leading to high inventory may require the company to seek additional financing, which could impact its financial performance.

Regarding regulations, the prospectus notes that “the recent reduction of emissions control regulations has adversely impacted the market for [its] environmental control products.”

Acquisition Strategy and Debt

Cemtrex describes its business plan as expanding “both organically and through acquisitions.” However, the company expects it will need “significant amounts of additional external capital” to realize these acquisitions, and it discloses that it may not be able to arrange these funds on favorable terms.

The prospectus states that the company had a total indebtedness of approximately $15.3 million as of June 30, 2018. This debt could affect Cemtrex’s ability to raise capital in the future, and the company’s ability to manage its debt will also depend on its financial performance.

Price Volatility of Potential Litigation

Cemtrex identifies itself as an early-stage company “without consistent product revenues and earnings,” whose shares face high volatility without direct relation to their operating performance. According to the prospectus, Cemtrex’s stock “may experience extreme price and volume fluctuations, which could lead to costly litigation” by investors.

The company was already named in three class action lawsuits in 2017, which made allegations related to “various aspects of [its] stock trading and relationships.” These lawsuits were later consolidated in 2018 and settled out of court.

Aegis Capital Corp. Underwriting  

Investors should know that Aegis Capital Corp. served as the underwriter for this offering. Underwriters take on risk in exchange for a fee, which could motivate certain investment banks to underwrite investments that pose too much risk for the average retail investor. Additionally, brokers may have conflicts of interest when they recommend shares that are underwritten by an affiliate of their brokerage firm. 

Do You Have Concerns Related to Your Shares of Cemtrex?

If you believe Cemtrex was overly risky for your risk profile, consider reaching out to a Kurta Law securities attorney for a consultation. Our securities attorneys have experience navigating FINRA arbitration to achieve fair settlements for our clients. Call (877) 600-0098 or email info@kurtalawfirm.com.