Market Manipulation, Deceptive Conduct and Misrepresentation. The American stock market policeman alleges that a group of investors enriched themselves with millions by fraudulently selling shares of the Terrebonne Loop Industries company. Its founder and CEO, Daniel Solomita, is said to have benefited from the scheme, which involves companies offshore and a mysterious “senior investor”.
Posted at 5:00 a.m.
Listed on the NASDAQ Global Markets Exchange, Loop Industries promises to build a plant with “breakthrough technology” that would recycle plastic bottles by breaking them down into valuable materials. She obtained a loan of 4.6 million from Investissement Québec in 2019, and received a visit from the federal Minister of the Environment and Climate Change, Steven Guilbeault, last July.
At the end of an investigation, the Securities and Exchange Commission (SEC) has just filed a complaint against the four men at the heart of the alleged scheme, in order, among other things, to recover the sums which would have been obtained illegally between 2014 and 2018.
The Autorité des marchés financiers and the Royal Canadian Mounted Police (RCMP) collaborated in the investigation.
Importantly, CEO Daniel Solomita is not charged with any wrongdoing in connection with this case, but is targeted by an allegation of “unjust enrichment” as a third party.
The complaint alleges that he received more than US$413,000 in 2015 for the sale of Loop shares to an unidentified Quebec company. The transaction allegedly involved a brokerage account belonging to one of Loop’s board members, Donald Danks, who served there from 2015 to 2018. The transaction is believed to be the “fruit of a fraudulent scheme” designed to ” hide its origin,” the SEC alleges.
In interview with The PressMr. Solomita strongly distanced himself from the allegations and the four defendants. “We did nothing wrong. Seven years ago, as a small business trying to raise funds, we had no idea how those funds were raised. It’s not like we have [à l’époque] a team of lawyers who could go and verify their origin, ”he defended himself.
PHOTO HUGO-SÉBASTIEN AUBERT, LA PRESSE ARCHIVES
Daniel Solomita, CEO of Loop Industries
Mr. Solomita said he was ready to hand over to the authorities this sum of US$413,000 that he and his company received. ” There is no problem. We’ve raised over $150 million in funding since then. I’m surprised the SEC didn’t just ask us to repay the amount,” he commented.
Companies offshore nominees
According to SEC allegations, a major Loop investor at the time, Canadian David Stephens, owned 6.5 million shares of the company across 11 companies. offshore nominees (offshore nominee entities). Thanks to these shell companies, he would have “made approximately 4.7 million in profit by selling Loop shares while hiding that he controlled the company”. This complex structure would have allowed it to “avoid scrutiny” by brokerage firms and stock market authorities, writes the SEC.
Mysterious “old investor”
Jonathan Destler, co-owner of a consulting firm that helped Loop in its launch, as well as a broker, Robert Lazerus, in collusion with David Stephens, are said to have sold about 7 million shares of Loop to an “investor unidentified elderly person, over whom they exercised a “significant influence”.
The three men allegedly “repeatedly took advantage of this relationship” to “time the stock purchases made by the ‘older investor’ so as to support the value of Loop’s stock”.
“When the elderly investor purchased shares, Stephens, Destler and/or Lazerus often resold shares of Loop,” the complaint summarizes.
“This activity has benefited Loop not only by boosting its stock value generally, but also by supporting its application to migrate the stock from off-exchange markets. [over-the-counter markets] to the NASDAQ trading platform, an event which, in itself, had a beneficial impact on the value of Loop’s stock,” writes the SEC.
other tile
This is a new controversy for the company founded in 2014 and which says it has designed a chemical technology allowing it to recycle a very common type of plastic, known by the acronym PET, from which bottles of drinks are made. water and soft drinks. This technology would create by-products so pure that they could be reused in food packaging.
A report published in the fall of 2020 by the firm specializing in short selling Hindenburg Research, which had relied in particular on the testimony of ex-employees, had raised serious doubts about the technology of Loop, which had been strongly shaken on the stock market. It was nevertheless able to obtain tens of millions of dollars by welcoming the South Korean giant SK Global Chemical (SKGC) among its investors in the summer of 2021. Loop has also forged partnerships with multinationals such as Évian.
Loop is still not generating any revenue. The company recently sold half of a gigantic 930,000 m2 (10 million square feet) in Bécancour, where it plans to build its new plant.
Hints about the SEC’s moves were in the company’s most recent annual report. She revealed that she had been subject to an order requiring her to provide “additional information” about her listing on the stock market, which dates back to 2015. In 2020, the SEC had also requested documents relating to the tests and results of laboratory regarding the development of the first two generations of Loop technology.
Mr. Solomita assures that the doubts raised two years ago by the Hindenburg Research report and the SEC’s requests were unfounded. “We have one of the largest chemical companies in the world which has invested [dans Loop], to build a factory with them in South Korea, and we have projects in France and around the world. We can certify that we have the best technology, and that it works. We have never been in such a good position to start our plant and we should be proud of what this company has accomplished,” insisted the CEO.