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Recycling company PureCycle lied to investors about its product, expected revenue, and more when it listed an IPO, falsely inflating share prices and violating the Securities Exchange Act, a new class action lawsuit claims.
The nationwide class action lawsuit was filed in Florida on May 11 by lead Plaintiff William Theodore, who alleges that PureCycle Technologies Inc. and members of its executive team misled investors by misrepresenting or failing to disclose that the technology PureCycle licensed from Procter & Gamble was not proven and presented serious issues, even at lab scale.
According to the claim, the company also hid the availability challenges for raw materials needed to commercialize the licensed technology, and lied about “baseless” financial projections.
According to its website, PureCycle has a “ground-breaking, patented recycling process, developed and licensed by Procter & Gamble…and commercialized by PureCycle, [that] separates color, order and other contaminants from plastic waste feedstock to transform it into Ultra-Pure Recycled Polypropylene (‘UPRP’) resin with virgin-like properties,” the class action lawsuit states.
In November, 2020 the company announced plans to become a publicly traded company via a merger with Roth Acquisition, which was setup as a special purpose acquisition company, according to the claim.
In March 2021, PureCycle and Roth Acquisition announced that their anticipated business combination was complete, and shares of PureCycle began trading on NASDAQ reaching a height of $35.75 each.
However, before markets opened on May 6, analyst Hindenburg Research published a scathing report on PureCycle stating that Hindenburg “spoke with multiple former employees of” PureCycle CEO Michael Otworth’s and other PureCycle executives’ former companies “who said PureCycle’s executives based their financial projections on ‘wild ass guessing’, brought companies public far too early, and had deceived investors,” the claim states.
The report also said that unlike most leading plastics companies that publish peer reviewed studies detailing their advancements in the field, Hindenburg was “unable to find a single peer reviewed study in any scholarly journal citing or reviewing PureCycle’s licensed process.”
It adds that PureCycle represents the worst qualities of the SPAC boom; “executives and SPAC sponsors enrich themselves while hoisting unproven technology and ridiculous financial projections onto the public markets, leaving retail investors to face the ultimate consequences.”
Hindenburg also tracked how Otworth and three other senior executives had taken at least 6 companies public, according to the class action lawsuit, and all had failed — two went bankrupt, three were delisted, and one was acquired after declining 95 percent.
“Over $760 million in public shareholder capital was incinerated in the process.”
According to the class action lawsuit, the Hindenburg report also detailed how PureCycle’s executive team received $7 million in cash bonuses for closing the SPAC deal with Roth Acquisition, and are slated to receive approximately $40 million in compensation before PureCycle generates any revenue.
“Indeed, Defendant Otworth himself, according to Hindenburg, collected $5 million in bonuses after the deal with Roth Acquisition closed.”
Theodore wants to represent anyone in the U.S. who has shares in PureCycle. He is suing for violations of the Securities Exchange Act and seeks certification of the Class, damages, legal fees and costs, and a jury trial.
PureCycle isn’t the only company facing allegations of violating the Securities Exchange Act. Recently, Hilton Grand Vacations Inc. and its board of directors were hit with a lawsuit for allegedly lying to shareholders and misleading them in the company’s acquisition of Diamond Resorts.
Are you a shareholder in PureCycle? Let us know in the comments section!
Theodore is represented by Cullin A. of CULLIN O’BRIEN LAW, P.A., and Jeffrey C. Block and Jacob A. Walker of Block & Leviton LLP.
The PureCycle Securities Exchange Act Violations Class Action Lawsuit is Theodore v. Purecycle Technologies, Inc., et al., Case No. 6:21-cv-00809-PGB-GJK, in the United States District Court Middle District of Florida.
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