As allegations emerge, Aphria names special committee to investigate.
More allegations emerge of ‘self-dealing’
WINDSOR, ONT. •Aforensic analysis firm that short sells companies continued its attack on beleaguered Leamington, Ont., cannabis producer Aphria Inc. on Thursday, releasing another round of allegations involving shell games and backroom deals.
Aphria released a statement early Thursday, before the new allegations went public, stating it had appointed a “special committee” to review the company’s recent acquisition of its Latin American holdings. Those assets were one of the targets of the first set of allegations from Hindenburg Research, which alleged Aphria is a “black hole” that enriched insiders at the expense of shareholders and wasted hundreds of millions of dollars on worthless acquisitions.
The research firm sent out a second volley in the afternoon.
“Our examination of Aphria led to another Aphriabacked company, Liberty Health Sciences, where we uncovered multiple irregularities that raise more questions around believed undisclosed insider selfdealing,” Hindenburg alleged.
Aphria chief executive Vic Neufeld and other company executives were unavailable for comment.
Hindenburg claims Liberty acquired a Florida property this year. But rather than just buying the assets, Hindenburg said, they were acquired through a newlyformed entity, “netting the shell holders an estimated C$5 million gain in 6 days.”
Hindenburg also claims that holders of that shell included key Aphria, Scythian, and Liberty deal partner/ insider Andy DeFrancesco, along with three other people alleged by the Securities Exchange Commission to have run “multiple pump & dump schemes.”
“Yet again, this transaction took place under the oversight of Vic Neufeld as Chairman of Liberty,” Hindenburg writes in its report.
The forensic analysis firm alleges that “unnamed individuals bought 242 million shares of Liberty in a highly dilutive $0.001 private placement,” just days after Aphria announced its plan to buy its shares at 208 times the price.
“Based on Canadian Securities Exchange records we believe Aphria/Liberty Chairman Vic Neufeld participated in this discount round, along with Andy DeFrancesco,” Hindenburg alleges.
In its statement Thursday morning, Aphria called the first round of allegations from Monday “inaccurate and misleading.” The company did not address any of the specific accusations in its statement.
“We are committed to protecting our shareholders and restoring market confidence by confirming all the facts through an independent process to rebut innuendo and deception,” said Neufeld. “Until then, it is business as usual at Aphria, as we continue taking significant steps to solidify our position as a premier global cannabis company.”
Aphria shares rebounded Thursday after news of the special committee was released. The stock had fallen for three consecutive days after the short-seller claims went public earlier this week. Its shares ended Thursday at $7.55, up 51 per cent.
Aphria said the special committee is composed of John M. Herhalt, Shlomo Bibas and Tom Looney. Aphria said Herhalt, the lead independent director and chair of the Audit Committee, will serve as chair of the special committee.
“Each of these members is independent and joined the Board following the closing of the Acquisition,” Aphria said. “The Special Committee is authorized to, and expects to, retain independent advisers to assist in its review.”
Meanwhile, a Pennsylvania law firm has also launched a class-action lawsuit against Aphria in light of the short-seller allegations.
Kaskela Law said it filed lawsuit on behalf of people who bought Aphria’s securities between July 17, 2018 and December 4, 2018. The law firm is looking for investors who suffered losses of more than $250,000.
The class action alleges that the defendants made “materially false and misleading statements during the Class Period.”