Loop Industries, a Terrebonne-based plastics recycling company to which Quebec provided a loan of up to $ 4.6 million last fall, is in an uproar. An activist investor published a damning report on him that led to several class actions filing and dropping his shares in the stock market.
Posted Oct 14, 2020 at 10:34 PM
Little known in Quebec, Loop is listed on the US electronic stock exchange NASDAQ, where its value at the beginning of the week was more than US 480 million. That was before Hindenburg Research, a company that has been in the spotlight in recent months for its activism with electric vehicle designer Nikola Motors, released an accusing report on Loop on Tuesday. Hindenburg criticizes, among other things, what she sees as the inexperience of managers and researchers, & # 39; empty & # 39; collaborations with multinationals and technology that do not yield results.
As with many other activist investors before, Hindenburg's approach is not selfless. The company says it short-sold Loop stock, allowing it to take advantage of the fall it triggered.
In a statement released late Tuesday, Loop denied the allegations made by the Hindenburg Report.
These claims are either baseless, false or based on the first iteration of our technology, known as & # 39; Gen 1 & # 39;, which was in use between 2014 and 2017.
Excerpted from an issue of Loop Industries
Available by phone, company spokesman Stephanie Corrente declined to provide further information. It was not possible to speak to anyone at the facilities on rue Fernand-Poitras in Terrebonne, where, according to Ms. Corrente, approximately 60 employees would work. La Presse tried to reach Founder and CEO Daniel Solomita by phone and at his home in Lorraine, without success.
> SEE THE HINDENBURG REPORT
> SEE LOOP & # 39; S REACTION
The stock is down 35%
At least half a dozen class actions, including one at the Saint-Jérôme courthouse and several in the United States, have also been filed against Loop in recent hours. The stock, which traded on the NASDAQ at about $ 11.50 before the Hindenburg report came out, fell 35% of its value in two days, ending the day at $ 7.55 Wednesday night. The stock market value of the company, which has never reported any income to date, has fallen to about $ 165 million.
According to our information, the company has so far received only about half of the loan promised by the Quebec government, which, however, had previously awarded it a grant of $ 100,000.
Recycling of plastic
Founded in 2014, Loop claims to have developed and patented a process for recycling a clear plastic that has been described as the most widely used in the world, particularly for food packaging, commonly & # 39; PET & # 39; called in English (polyethylene terephthalate in French). Specifically, it claims to be able to extract two perfectly pure components from PET that can then be reused to make other packaging.
According to Hindenburg, Loop claims "to have discovered how to turn vulgar junk into pure gold, an achievement that billion dollar chemical companies such as DuPont, Dow Chemical and 3M have not been able to achieve on a large scale, despite years. of efforts ".
Based on the testimony of former employees – whose identities remain confidential – the company has serious concerns about the credibility of Loop's claims about its technology.
"When I took office, they were already talking about high yields with a high degree of purity for both components," said La Presse, a person who previously worked at Loop and contributed to the Hindenburg report. , but who does not want to be identified because she is covered by a nondisclosure agreement.
"But one of the two was not even purified and the other had a different purity depending on the batches we were making. It rang a bell from the start and got worse after that.
The company has since then changed its process, which it now refers to as "Gen 2." Several claims in the Hindenburg report specifically mention "Gen 2" technology.
Reviews from the staff
From the outset, the report discusses the curriculum vitae of Loop's president and CEO, Daniel Solomita, who has no background in chemistry, but instead has a degree in finance and computer science.
Prior to founding Loop, he was involved with another publicly traded company active in plastics recycling, Dragon Polymers. The latter eventually completely written off its recycling activities from the balance sheet and no longer assigned any value to it.
Two weeks later […]Solomita incorporated Loop Holdings. It is as if Loop evolved from a business concept that devalued Solomita & # 39; s former company to $ 0.
Excerpt from Hindenburg's report
Based on court documents from a California lawsuit, Hindenburg also notes notes that, as part of its initial fundraising efforts, the company has employed two individuals who have already been convicted by the US Securities and Exchange Commission (SEC) for securities-related crimes.
As for the two brothers identified as the main tech makers, they are both in their twenties and have no previous work experience at Loop, Hindenburg complains.
Over the years, Loop has announced numerous partnerships with very big names in the corporate world: most notably Coca-Cola, PepsiCo, L'Oréal and Danone. However, these partnerships are actually "empty", the firm estimates, after coming into contact with these companies.
La Presse tried to reach these four multinationals on Wednesday. Only L'Oréal Canada responded, saying it had no partnership with Loop. "It appears that they [Loop] have an agreement with L & # 39; Oréal International and unfortunately I have no details," L & # 39; Oréal Canada spokesman Virginie Hotte-Dupuis said in an email to the press.
Hindenburg claims to have spoken to former Loop Growth Chief Nelson Switzer, who said that multinational companies "gamble on all kinds of things" and it could take a year or two after the partnership announcement to complete due diligence.
None of the partners contacted by Hindenburg claimed to have received recycled plastic from Loop.
In 2017, the company contacted Montreal East Mayor Robert Coutu with the goal of eventually building a factory there. The project has never seen the light of day.
"I spoke to Daniel Solomita," Coutu told La Presse. I met him, they gave a demonstration and made a site visit. They came to Montreal East in October 2018. At the time, I had checked the zoning plans with our receptionist, Mr. Sergerie, and it was all right. They created about fifty jobs. It was a company with an international clientele. They were talking to customers including Pepsi, Evian and others. I haven't heard from them since.
Interestingly, three company insiders took advantage of the stock's decline in the past two days to buy it. They spent a total of US $ 202,715.
– With Isabelle Dubé, André Dubuc and Nathaëlle Morissette, La Presse