BOSTON (Jan. 5, 12:50 p.m. ET) — The CEO of JBI Inc. has been charged with allegedly reporting false and inaccurate financial information in 2009 to bolster the company's balance sheet to help raise capital it needed to build and operate its plastics-to-oil processors.
“The defendants misrepresented and overstated the actual value of JBI's assets and, hence, of the company itself by almost 1,000 percent,” said the lawsuit filed in federal court on Jan. 4 by the Securities and Exchange Commission against JBI, JBI founder and CEO John Bordynuik and former chief financial officer Ronald Baldwin Jr.
“The defendants then used the overvalued financial statements in two private capital raising efforts that raised more than $8.4 million from unwitting investors,” the suit claims.
The suit, filed in U.S. District Court in Boston, charges Bordynuik, Baldwin and JBI, which is headquartered in Thorold, Ontario, with securities and accounting fraud. JBI had an office in Cambridge, Mass., which SEC said was its principal place of business for a portion of the period when the fraud was allegedly committed.
The SEC lawsuit said that “during the third quarter of 2009 and the year 2009, JBI materially overstated certain assets in an effort to bolster its balance sheet” to increase its chances of success in two private capital raising efforts that were “geared toward raising the capital necessary to begin commercial operation and production of P2O,” the company's Plastic2Oil technology.
Those capital fund-raising efforts raised more than $8.4 million. But SEC said that shortly after obtaining the financing, “the company issued a public statement indicating its financial statements could no longer be relied upon due, in part, to the erroneous valuation of certain assets on the balance sheet (i.e., the media credits).”
SEC's complaint alleges that JBI erroneously booked the magnetic media credits at a value of $9.997 million—-making them the single largest asset on the company's balance sheet—when they should have been initially booked at a value of $1 million, which was the price that JBI paid for those media credits in common stock in August 2009, said the SEC.
The SEC lawsuit also said that JBI should have subsequently remeasured the media credits at their current value and written them down to zero at the end of the company's third fiscal quarter on Sept. 30, 2009.
The agency further charged that Bordynuik falsely certified that the company's financial statements for those reporting periods were filed in conformity with Generally Accepted Accounting Principles and that Baldwin, too, was aware of the GAAP concerns surrounding the reported value of the media credits, but also falsely certified that the company's financial statements for that period were filed in conformity with GAAP.
In a statement, JBI said it was “profoundly disappointed by the erroneous allegations of fraud” by the SEC.
“The company ... looks forward to vigorously defending itself in court, where the company believes it will prevail on the merits,” said the JBI statement. “The allegations in the complaint concern legacy accounting issues that have since been corrected.”
“Contrary to the allegations made by the SEC, the company believes that its officers acted in good faith in valuing the media credits discussed in the complaint, based on the information available at the time,” said JBI. “The company further maintains that after learning of potential problems relating to these credits, it took appropriate steps in compliance with its obligations to shareholders and the public markets at large.”
The SEC lawsuit seeks permanent injunctions, disgorgement plus prejudgment interest, civil penalties, and bars on Bordynuik and Baldwin serving as directors and officers of the company.
JBI currently has operations in Ohio, Florida, New York and Pennsylvania, according to the SEC. It was known as 310 Holdings Inc. until it changed its name to JBI on Oct. 5, 2009.
In July JBI signed a 10-year agreement to mine, use and convert plastic waste into fuel from paperboard manufacturer Rock-Tenn Co., based in Norcross, Ga. using JBI's Plastic2Oil technology.
That agreement gives JBI the right to mine plastic from Rock-Tenn-owned, plastic-only monofill sites and to build and operate Plastic2Oil processors at Rock-Tenn facilities. Rock-Tenn has 15 containerboard mills in the U.S. and Canada, and 90 container plants in the U.S., Canada and Mexico
Just last month, JBI signed long-term fuel supply agreements with Indigo Energy to take No. 6 fuel oil from JBI's P20 plant in Niagara Falls, N.Y., and to supply transport fuel from that plant to XTRA Energy Co. Ltd.
JBI also has a fuel supply agreement with Coco Paving Inc., reached last June, and has been selling fuel since this past April to Oxo Vinyl Canada.