In the latest SPAC-related securities class action lawsuit filing, a plaintiff shareholder has initiated a securities suit against Agtech company AppHarvest, alleging material misrepresentations after the company recently experienced a stock price drop. A copy of the plaintiff’s September 24, 2021 securities class action lawsuit complaint can be found here.
Norvus Capital Corp. was a special purpose acquisition company (SPAC). Norvus completed its IPO on May 14, 2021. AppHarvest is a sustainable food company that operates applied technology greenhouses to produce vegetables and produce. AppHarvest became a publicly traded company as a result of business combination with Norvus that closed January 29, 2021.
On August 11, 2021, AppHarvest announced its second quarter 2021 financial results, reporting a financial loss of $32 million. The company also lowered its full year sales guidance to a range of $7 million to $9 million, from a prior range of $20 million to $25 million.
The company said that its second quarter results were “adversely impacted by operational headwinds with the ramp up to full production at the company’s first CEA facility, including labor and productivity challenges related to the training and development of the new workforce and historically low market prices for tomatoes.”
The company attributed its adjustment to its sales guidance to the aforementioned “headwinds” as well as to “moderated produce market price expectations and a strategic decision to broaden its business model by investing in farm operations technology.”
According to the subsequently filed securities class action lawsuit complaint, the company’s share price fell approximately 29% on this news.
On September 24, 2021, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against AppHarvest; its CEO; and its CFO. The complaint purports to be filed on behalf of AppHarvest investors who purchased the company’s securities between May 17, 2021 and August 10, 2021. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The complaint quotes extensively from the Company’s May 17, 2021 SEC filing on Form 10-K and its May 17, 2021 SEC filing on Form 10-Q. The complaint quotes from the company’s statements in the filings concerning the company’s farming operations and results of operations.
The complaint also quotes extensively from the company’s August 11.2021 financial results analysis. The complaint alleges that between May 17, 2021 (the date of the prior SEC filings) and August 10, 2021 (the date before the August 11, 2021 financial results report), the defendants failed to disclose to investors: “(1) that AppHarvest lacked sufficient training for its recently expanded labor force; (2) that, as a result, the Company could not produce Grade No. 1 tomatoes consistently; (3) that as a result, the Company’s financial results would be adversely impacted; and (4) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”
By my count, this new lawsuit is the 23rd SPAC-related securities class action lawsuit to be filed so far this year. The complaint is somewhat different than the complaints in other SPAC-related lawsuits that have been filed this year. For example, this latest complaint, unlike the complaints in many of the other SPAC-related lawsuit filed this year, does not name as defendants any of the former directors or officers of the SPAC. In addition, again unlike many of the other lawsuits, it does not involve any alleged wrongdoing prior to the merger with the SPAC. All of the alleged misrepresentations and omissions are alleged to have taken place after the merger. In addition, unlike many of the other SPAC-related securities suits filed this year, the allegations in the complaint do not related to a short-seller’s report.
On the other hand, the complaint does have certain similarities with other SPAC-related suits this year. First, it involves a business stumble only a short time after the previously private company became a publicly traded company as a result of a merger with a listed SPAC. In this case, the company appears to have hit some bumps in its second reporting period as a public company, an allegation that is similar with many of the recently filed securities suits against SPACs, which similarly involve allegations that a company that recently become a public company as a result of a SPAC merger and had stumbled out of the gate.
The lawsuit is also similar to many of the SPAC-related securities suits filed this year in that it involves a company with a new technology, a new product, or a new service. Here AppHarvest’s business model depends on new application of technology to one of the oldest business there is – agriculture. The company had only a short track-record with its new high technology greenhouses. The company’s new technological approach together with its short operating history and lack of experience contributed to the company’s stumbles in its early stages.
Over 400 SPACs currently out in the financial marketplace looking for merger targets. The sheer number of searching SPACs virtually ensures that there will be competition for the more promising private companies. It also seem likely that some of these searching SPACs, closed off from other opportunities, may find themselves drawn to companies like the one involved here seeking to exploit new technologies or new technological applications to existing processes. These circumstances would seem to increase the likelihood that many of the companies targeted for merger will stumble as public companies, which in turn could mean further SPAC-related securities litigation.