NEW YORK, Aug. 02, 2024 (GLOBE NEWSWIRE) -- Bragar Eagel & Squire, P.C., a nationally recognized shareholder rights law firm, reminds investors that class actions have been commenced on behalf of stockholders of The Scotts Miracle-Gro Company (NYSE: SMG), Gritstone bio, Inc. (NASDAQ: GRTS), FAT Brands Inc. (NASDAQ: FAT), and Charge Enterprises (NASDAQ: CRGEQ). Stockholders have until the deadlines below to petition the court to serve as lead plaintiff. Additional information about each case can be found at the link provided.
The Scotts Miracle-Gro Company (NYSE: SMG)
Class Period: November 3, 2021 - August 1, 2023
Lead Plaintiff Deadline: August 2, 2024
Scotts produces various lawn, garden, and agricultural products for both consumer and professional purposes. It is also the world’s largest marketer of branded consumer products for lawn and garden care. In 2014, Scotts formed a wholly owned subsidiary, The Hawthorne Gardening Company, which focuses on hydroponics for the emerging cannabis growing market. The Company sells a vast majority of its products through third-party distributors.
During the Class Period, Scotts was highly leveraged, with its senior secured credit facilities containing various restrictive covenants and cross-default provisions that require the Company maintain specific financial ratios. A breach of any of these covenants could result in a default, enabling the Company’s lenders to declare all outstanding indebtedness immediately due and payable. A key covenant required that Scotts maintain a debt-to-EBITDA ratio under 6.25. In 2020 and 2021, prior to the beginning of the Class Period, Scotts had missed out on millions of dollars in sales due to a lack of inventory as it faced surging demand. In response to this strong demand, Scotts significantly increased its inventory.
The complaint alleges that, throughout the Class Period, Defendants made numerous materially false and misleading statements and omissions concerning the Company’s inventory levels, debt covenant compliance, and financial performance. Specifically, Defendants repeatedly assured investors that the Company’s inventory levels were appropriate, while attributing strong sales to “selling through high-cost inventory,” which resulted in “peak selling” and “record” shipments. Defendants also repeatedly assuaged investors’ concerns about the Company’s debt, stating that they were “optimistic we will remain within the bounds of our bank covenants” and “[did] not see leverage compliance issues going forward.” As a result of these misrepresentations, Scotts common stock traded at artificially inflated prices during the Class Period.
The complaint further alleges that in reality, Scotts’ executives engaged in a scheme to saturate the Company’s sales channels with more inventory than could be sold to end users. This scheme enabled Scotts to book as revenue the sales to its distributors and maintain earnings to debt ratios that just barely exceeded those required by its debt covenants.
The complaint further alleges that the truth began to emerge on June 8, 2022, when Scotts revealed that replenishment orders from its U.S. retailers were $300 million below target in the month of May alone. The Company also cut its 2022 full-year earnings guidance by roughly half and announced plans to take on additional debt to cover restructuring charges as it attempted to cut costs. These disclosures came mere weeks after the Company promised that it was “tracking to do even better” than its guidance. However, throughout the rest of the Class Period, Defendants continued to downplay the Company’s inventory and debt compliance issues.
Then, on August 2, 2023, Scotts revealed that quarterly sales for its fiscal third quarter had declined by 6% and gross margins fell by 420 basis points. The Company also slashed fiscal year EBITDA guidance by a staggering 25% and announced it had to take a $20 million write down for “pandemic driven excess inventories.” Scotts further disclosed that it had to modify its debt covenants from 6.25 times debt-to-EBITDA ratio to 7.00 times debt-to-EBITDA ratio. As a result of these disclosures, the price of Scotts common stock declined precipitously.
For more information on the Scotts class action go to: https://bespc.com/cases/SMG
Gritstone bio, Inc. (NASDAQ: GRTS)
Class Period: March 9, 2023 - February 29, 2024
Lead Plaintiff Deadline: August 6, 2024
Gritstone, a clinical-stage biotechnology company, engages in developing vaccine-based immunotherapy candidates against cancer and infectious diseases.
In September 2023, Gritstone entered into a contract with the Biomedical Advanced Research and Development Authority ("BARDA") to run a 10,000 participant, randomized Phase 2b double-blinded study to compare the efficacy, safety, and immunogenicity of its COVID-19 vaccine candidate (a samRNA vaccine candidate) with an approved COVID-19 vaccine (the "Phase 2b CORAL Study" or the "Study"). In a press release announcing the Phase 2b CORAL Study, the Company stated that the contract "provides strong validation of [its] innovative vaccine platform in infectious diseases," that execution of the study would be fully funded by BARDA, and that the Study would be expected to launch in the first quarter of 2024.
Throughout the Class Period, Defendants made materially false and misleading statements regarding the Company's business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) the Company would be unable to launch the Phase 2b CORAL Study in the timeframe it had represented to investors; (ii) the foregoing would impair Gritstone's ability to obtain external funding in connection with the Study, thereby negatively affecting Gritstone's ability to maintain its balance sheet and cash position; (iii) accordingly, Gritstone overstated its ability to successfully develop and commercialize its products; (iv) as a result, the Company's public statements were materially false and misleading at all relevant times.
On February 12, 2024, Gritstone issued a press release announcing that the Company was delaying the launch of the Study until Fall 2024 to purportedly "allow use of fully GMP-grade raw materials in the vaccine, which is expected to increase the regulatory utility of the trial."
Then, on February 29, 2024, Gritstone issued a press release "announc[ing] an approximately 40% reduction of its workforce", stating that "[t]he move comes following the recently announced delay of the proposed CORAL Phase 2b study, which resulted in Gritstone not receiving external funding it previously anticipated beginning in 1Q 2024, associated with the initiation of the study."
On this news, Gritstone's stock price fell $0.78 per share, or 27.86%, to close at $2.02 per share on March 1, 2024.
For more information on the Gritstone class action go to: https://bespc.com/cases/GRTS
FAT Brands Inc. (NASDAQ: FAT)
Class Period: March 24, 2022 - May 10, 2024
Lead Plaintiff Deadline: August 6, 2024
According to the lawsuit, defendants throughout the Class Period made materially false and/or misleading statements and/or failed to disclose that: (1) defendants failed to disclose that Andrew A. Wiederhorn, the Company’s Chairman and former CEO, had received improper payments from the Company, exposing FAT Brands to criminal liability; and (2) as a result, defendants’ statements about its business, operations, and prospects, were materially false and misleading and/or lacked a reasonable basis at all times.
For more information on the Fat Brands class action go to: https://bespc.com/cases/FAT
Charge Enterprises (NASDAQ: CRGEQ)
Class Period: December 15, 2021 - February 28, 2024 (Common Stock Only)
Lead Plaintiff Deadline: August 12, 2024
Charge is an electrical, broadband, and electric vehicle (“EV”) charging infrastructure company. Its business, including through its various subsidiaries, has two primary segments: infrastructure, which has a focus on EV charging stations and wireless network Case 1:24-cv-04056 Document 1 Filed 05/28/24 Page 5 of 32 6 communications; and telecommunications, which provides connections for voice calls and data to global carriers.
The complaint alleges however, the events that give rise to this Class Action are not connected to Charge’s primary business ventures or revenue streams, but rather stem from reckless oversight of Charge’s capital and materially misleading statements and omissions in connection therewith.
Charge Enterprises initially incorporated under the name “E-Education Network, Inc.” in 2003 and changed its name to GoIP Global Inc. (“GoIP Global”) in 2005. In April 2020, GoIP Global acquired Transworld Holdings, Inc. In August 2020, GoIP Global changed its name to Transworld Holdings, Inc. In January 2021, Transworld Holdings, Inc. changed its name to Charge Enterprises, Inc.
Following this series of corporate transactions, Charge was uplisted with the NASDAQ Stock Exchange on April 12, 2022 with the ticker symbol “CRGE.”
Since at least the fourth quarter of 2020, Charge and its predecessor entities have employed KORR Acquisitions, a registered investment advisor controlled by Orr and Cori Joy Orr, to manage certain of its investments and excess liquidity.
On June 19, 2020, GoIP Global disclosed that it “intends to engage KORR Acquisitions Group, Inc. as a consultant to provide certain consulting and advisory services to GOIP for fees to be agreed upon. Kenneth Orr, Director, President and Chief Financial Officer of [GoIP], is Principal Operating Officer of KORR Acquisitions Group, Inc. KORR Acquisitions Group, Inc. is managing member of KORR Value, LP.”
During the fourth quarter of 2020, GoIP Global and KORR Acquisitions entered into what Charge described as an “informal at-will arrangement” under which the Company entrusted KORR Acquisitions to “provide investment advisory services on an as-needed basis” (the “Informal Arrangement”). Specifically, Charge granted KORR Acquisitions “discretionary authority, without prior consultation with the Company, to buy, sell, trade and allocate in and among stocks, bonds and other securities and/or contracts relating to the same,” on an “as-needed basis.” The Company stated that the value of the assets it invested with KORR Acquisitions under the Informal Arrangement “shall not exceed 20% of the Company’s total assets.”
On December 15, 2021, before Charge was uplisted to NASDAQ and while its common stock was still trading over the counter, the Company’s registration statement (filed on December 10, 2021 on Form S-1), became effective. The Registration Statement described the Informal Arrangement as an “at-will” agreement for KORR Acquisitions to invest in “marketable securities” on the Company’s behalf. The Registration Statement reiterated that the investments were limited to “20% of our assets, and of that, less than 5% in illiquid assets,” and stressed that “[w]e continuously monitor and review the value of our investments, including, but not limited to conducting a mark-to-market valuation of our investments on a weekly basis, and, if ever we exceed 20%, we will liquidate marketable securities to stay within our intended maximum investment of 20% of our total assets.”
Before its uplisting on NASDAQ, Orr was the single largest stockholder in Charge, controlling more than eighty percent of the Company. However, in connection with that uplisting, NASDAQ and the SEC raised a number of questions regarding Orr’s involvement with Charge, particularly his having a majority ownership in the Company, his position as the Chairman of the Board of Directors, and the Informal Arrangement with the Company.
Given NASDAQ and the SEC’s concerns, Orr accordingly divested his interest in Charge to less than ten percent beneficial ownership of the Company, and stepped down as the Chairman of the Board of Directors effective September 14, 2021.
Charge and KORR Acquisitions operated under the Informal Arrangement until June 2022, at which time they entered into a written Special Advisor Agreement whereby KORR Acquisitions agreed to “manage the Company’s investment account” in exchange for a $500,000 up-front payment and a monthly payment of $25,000. The agreement had a term of 1 year.
In early to mid-2023, Charge informed Orr that it would require the return of certain Company funds to satisfy certain Company liabilities that were to come due and payable on in November 2023. Specifically, in April 2023, Denson informed Orr that the Company would require the complete return of its invested funds by November 1, 2023 to address (1) certain accounts payable of its subsidiary, PTGi International Carrier Services, Inc., and (2) the outstanding debt due to its senior lender, Arena Investors, LP (“Arena”).
Charge’s obligations to Arena, which were to become due and payable on November 19, 2023, were structured under two securities purchase agreements (the “Arena Notes”). In total, Charge had an outstanding principal balance of $27.8 million due under the Arena Notes. In addition, Charge had a number of other outstanding debt obligations under other loan agreements that, while not immediately due in November 2023, contained cross-default provisions.
Between May and November of 2023, Charge communicated frequently with Orr about the need for Orr and KORR Acquisitions to return the funds the Company had invested with KORR Acquisitions to enable the Company to satisfy its various debt obligations.
In May 2023, Denson emailed Orr requesting the full withdrawal of Charge investments held by KORR Acquisitions.
Orr and KORR Acquisitions did not return the funds as requested to do so in May. Schweller emailed Orr on July 25, 2023 requesting the immediate return of $10 million from the Company’s investment accounts.
Despite its previous requests for the return of Company funds, as of August 22, 2023, Charge still had $14 million invested with and under the management and control of KORR Acquisitions. On that date, Denson again communicated with Orr about a schedule for Orr and KORR Acquisitions to return the Company’s invested capital. Under the drawdown schedule devised that day, Orr was to return to Charge $3 million by the first week of September 2023, $3 million between September 15-30, 2023, $6 million between October 15-30, 2023, and the remainder between November 1-10, 2023. None of this – including that prior requests had been made and ignored, nor the drawdown schedule – was disclosed to investors.
Orr and KORR Acquisitions failed to abide by this drawdown schedule. Despite agreeing to return a total of $6 million in September, Orr and KORR Acquisitions had only returned $2.25 million by the end of that month. Further, and despite their agreement to return $6 million in October, Orr and KORR Acquisitions only returned $1.75 million of Company funds in October 2023. Thus, by the end of October, and despite agreeing to return $12 million of Company funds by the end of October, Orr and KORR Acquisitions had only returned $4 million.
On November 1, 2023, Denson emailed Orr, reminding him that Charge’s “loan with Arena is due this month . . . we need the Charge money returned ASAP this week.” Orr did not respond to this email in writing.
On November 2, 2023, Denson and Orr spoke on the phone to discuss Orr and KORR Acquisitions’ failure to adhere to the original drawdown schedule. On that call, Orr proposed a revised drawdown schedule, offering to return $1 million by the end of the day, $3 million on November 6, $3 million on November 14, and the remainder by the “end of 2023, or perhaps in 2024.”
On November 3, 2023, Denson reiterated to Orr the need for an expeditious return of the funds, and that Charge was experiencing financial harm as a result of Orr’s failure to return the funds, which could impact the Company’s ability to continue as a going concern. That same day, Denson and Orr discussed a third drawdown schedule: $1 million on November 3, $3 million early in the week of November 6, and $6.75 million by November 13 or 14. Defendants did not cause Charge to inform investors of these developments either.
Despite the various drawdown agreements, Orr only returned $800,000 on November 3, and $200,000 on November 6.
Thus, by early November, 2023, after months of failing to receive the requested Company funds from Orr and KORR Acquisitions, Defendants knew that Charge was facing serious undisclosed liquidity problems. As Denson reminded Orr, these funds were “critical to [Charge’s] liquidity,” despite the Company’s representation several weeks prior that it had more than $51,000,000 in cash and cash equivalents. Defendants therefore knew and understood that, if Orr and KORR Acquisitions failed to return the Company funds as requested, a default on the Arena Notes was nearly certain, and that this would lead to an “imminent cascade of negative consequences,” namely, the invocation of cross-default provisions in the Company’s other debt instruments.
But, as described below in further detail, Defendants continued to paint a rosy picture of Charge’s financial condition throughout the fall of 2023, despite knowledge that the funds held by KORR Acquisitions were “critical” to the Company’s liquidity. In fact, as late as November 8, 2023, Charge expressed its expectation “to have sufficient resources to meet [its] current operating liquidity and capital requirements for the next 12 months.”
The complaint states that the situation came to a head on November 13, 2023, when Orr advised Biehl that the Company’s funds were invested in KORR Value, a limited partnership whose General Partner is KORR Acquisitions. And, as Orr advised Biehl, the terms of the KORR Value Limited Partnership Agreement, dated May 9, 2020, make Charge a limited partner in KORR Value and grant to KORR Acquisitions, as General Partner, the “sole and absolute” right to limit redemptions of limited partnership interests. In accordance with KORR Value’s Limited Partnership Agreement, Orr informed Charge that KORR Acquisitions would be unable to return the requested funds because they were “cross-collateralized” with other accounts and that those accounts were “under water.”
Charge first informed the market of the dire situation it faced on November 21, 2023 in a Form 8-K filed with the SEC. Despite its announcement that it had more than $51,000,000 in cash several weeks prior, the Company stated that it had received a default notice from Arena, and announced that its prior belief that it had “approximately $9.9 million of Company assets . . . in the form of cash, cash equivalents, marketable securities or similar readily liquid assets” was false; instead, these funds had actually been invested in KORR Value and were thus “not immediately able to be liquidated or readily accessible.” The Company further warned that if it “continues not to have sufficient liquidity to pay the principal and interest on the [Arena] Notes . . . these circumstances could result in a default under other of the Company’s debt instruments and agreements that contain cross-default provisions.” As the Company explained, this situation would likely “have a material adverse effect on the Company’s liquidity, financial condition and results of operations, and may render the Company insolvent and unable to sustain its operations and continue as a going concern.”
On December 6, 2023, in a Form 8-K filed with the SEC, Charge informed the market that it had received several additional default notices from Arena. The December 6, 2023 8-K further stated that the Company was ceasing the operations of certain of its telecommunications subsidiaries in an effort to preserve liquidity.
On January 25, 2024, in a Form 8-K filed with the SEC, Charge informed the market that the Company had received a foreclosure notice from Arena stating that, to satisfy the Company’s outstanding indebtedness, Arena would be holding an auction, pursuant to the Uniform Commercial Code, to liquidate 100 percent of the equity interests in certain Charge subsidiaries at auction.
On February 28, 2024, in a Form 8-K filed with the SEC, after months of restructuring efforts, Charge announced that it had entered into a Restructuring Support Agreement with two affiliates of Arena, which was to be implemented through the commencement of a voluntary Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware.
On February 29, 2024, NASDAQ suspended trading of Charge common stock.
On March 7, 2024, Charge filed its voluntary petition for bankruptcy under Chapter 11. See In re Charge Enterprises, Inc., Bankr. Case No. 24-10349 (Bankr. D. Del.).
According to the filed complaint, during the Class Period, Defendants issued materially false and misleading statements regarding the nature of Charge’s relationship with KORR Acquisitions, the degree of control that KORR Acquisitions exercised over Charge assets that were “critical” to the Company’s liquidity, and the nature of the investments that KORR Acquisitions held on the Company’s behalf, as well as materially false and misleading statements about the Company’s risk policies, procedures, and compliance oversight functions, exposing the Company and its investors to substantial losses.
For more information on the Charge class action go to: https://bespc.com/cases/CRGEQ
About Bragar Eagel & Squire, P.C.:
Bragar Eagel & Squire, P.C. is a nationally recognized law firm with offices in New York, California, and South Carolina. The firm represents individual and institutional investors in commercial, securities, derivative, and other complex litigation in state and federal courts across the country. For more information about the firm, please visit www.bespc.com. Attorney advertising. Prior results do not guarantee similar outcomes.
Contact Information:
Bragar Eagel & Squire, P.C.
Brandon Walker, Esq.
Marion Passmore, Esq.
(212) 355-4648
investigations@bespc.com
www.bespc.com
