Shares of PureCycle Technologies, a plastics recycling firm which went public in mid-March through a special purpose acquisition company (SPAC) transaction, has plummeted more than 40% in value this week amid allegations by a research firm that it committed fraud by misleading investors about its technology and making wild revenue forecasts.
Hindenburg Research, a research firm that focuses on alleged corporate fraud and malfeasance, characterized the $1.8 billion market cap PureCycle in a Thursday report as a “zero revenue” charade.
Hindenburg said that PureCycle’s CEO, Mike Otworth and other associated executives, had previously taken public six other companies, all of which have failed, including two bankruptcies and three de-listings, resulting in the loss of $760 million to shareholders.
Hindenburg alleged these companies were taken public too quickly, based on unrealistic revenue projections, adding that PureCycle executives have already received $7 million in cash bonuses for closing the SPAC deal and are expected to receive another $40 million in compensation “before any revenue is generated.”
Hindenburg further described one of PureCycle’s SPAC sponsors, investment bank Roth Capital of Newport Beach, Calif., as having an “odious reputation” and which has brought several Chinese companies public on U.S. exchanges which later collapsed amid fraud allegations, including China Electric Motor in 2011.
Roth Capital and another PureCycle sponsor, Craig Hallum Capital, are the only investment banks which have even issued research on PureCycle — both with “buy” ratings and price targets of between $45-$48 per share, Hindenburg noted.
Forbes has reached out to Hindenburg, PureCycle, Roth Capital and Craig Hallum for comment.
$14.83. That was PureCycle’s closing share price as of Thursday, down almost 55% from its peak of $32.69 on Mar. 18.
Based in Ironton, Ohio, PureCycle is a six-year-old company which claims to have a proprietary method to recycle polypropylene (a common plastic used in various commercial products, but which the plastics industry has had a difficult time in recycling economically, Hindenburg noted) into resin by using a patented recycling technology licensed from Procter & Gamble. This way, the plastic can be used again and again instead of turning into permanent waste. At present, less than 1% of all polypropylene is recycled, PureCycle said. In 2019, Time magazine praised PureCycle’s patented technology as one of the top 100 inventions of the year. PureCycle has also projected generating annual net revenues of $224 million in fiscal 2023, and $2.3 billion by 2027. But Hindenburg indicated that it couldn’t find any “scholarly journal citing or reviewing” PureCycle’s licensed process, adding that other plastics companies were dubious about the firm’s product and financial projections.
“PureCycle represents the worst qualities of the SPAC boom; another quintessential example of how 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,” wrote Hindenburg.
Various legal firms, including Boston’s Block & Leviton and New York-based Rosen Law Firm, have launched investigations into PureCycle for alleged securities fraud, while offering to represent investors in potential litigation. Forbes has reached out to Block & Leviton and Rosen for comment.
SPAC-engineered IPOs, which have boomed this year, have come under high-profile criticism.In April, Microsoft co-founder Bill Gates told CNBC that too many “low-quality” SPAC deals are bringing companies to market too quickly. “There will be quality companies that SPAC, and there will be low-quality companies that SPAC, and I am going to try and stay involved in the higher quality ones,” Gates said. Similarly, SPAC investor and former CEO of online real estate marketplace Zillow Group, Spencer Rascoff, told GeekWire: “There are too many SPACs. Now, there are not too many good SPACs.” According to the database of SPAC Research, a total of 310 SPAC IPOs have come to market so far this year in the U.S., raising $101.2 billion, already surpassing totals for all of 2020.