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Why Shares of SmileDirectClub Trounced the Market on Tuesday

By Eric Volkman - May 19, 2020 at 7:59PM

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Investors seem encouraged that the company is suing a big media company over a highly critical news report.

What happened

SmileDirectClub (SDC -6.57%) is getting litigious. On Monday, after market close, the company announced that it is suing Comcast unit NBC Universal Media in a Nashville, Tennessee court for $2.8 billion. The following day, the stock closed almost 6% higher. 

The lawsuit concerns a report on NBC's Nightly News With Lester Holt that called into question the business practices of the teeth-straightening company.

Two SmileDirectClub aligners.

Image source: SmileDirectClub.

So what

The report, which aired in February, alleged that SmileDirectClub was negligent in the care of one of its patients, and at times was lax in following its own rules and procedures. The company is suing NBC Universal Media and reporter Vicky Nguyen "for knowingly and intentionally making factually inaccurate, misleading and defamatory claims about the Company and its platform."

SmileDirectClub claimed that the report contained over 40 false and misleading statements. 

"NBC misled its viewers and readers about the safety of the treatment that patients receive when using SDC's platform, the involvement of licensed dentists and orthodontists in the treatment of patients when using SDC's platform, and the benefits that patients receive when they are treated," the filing reads.

In a remark quoted by The Wall Street Journal, NBC said that "[w]e stand by our reporting and believe this is a meritless claim."

Now what

SmileDirectClub claims that the report caused a decline in its stock price, eroding $950 million in market capitalization. It said that under the provisions of Tennessee's Consumer Protection Act, it can file to recover treble damages.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

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Stocks Mentioned

SmileDirectClub, Inc. Stock Quote
SmileDirectClub, Inc.
SDC
$1.99 (-6.57%) $0.14
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CMCSA
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