PureCycle Technologies Inc., which continues to work through challenges starting up the company's first polypropylene recycling facility in Ohio, agreed to pay $12 million to settle legal claims that alleged the polypropylene recycler misled its shareholders.
About a third of the payment total is slated to go to lawyers.
The proposed settlement in the U.S. District Court in Orlando, Fla., covers "all persons and entities" that purchased or acquired the company's stock between Nov. 16, 2020, and Nov. 10, 2021."
PureCycle, for its part, is not commenting beyond a short mention of the settlement in a recent filing with the U.S. Securities and Exchange Commission.
Plaintiffs, in an exhibit for the proposed settlement filed with the court, alleged the company "violated certain federal securities laws by allegedly making misrepresentations and/or omissions of material fact in public statements to the investing public regarding PureCycle's polypropylene recycling process and PureCycle management's prior business experience."
These misstatements or omissions "artificially inflated the price of PureCycle securities, and that the securities' prices dropped in response to certain subsequent disclosures," the plaintiffs said in the exhibit.
Those subsequent disclosures included a report by short seller Hindenburg Research, which would benefit by a drop in share price, in May 2021 that questioned the company's technology. PureCycle later said in November 2021 the SEC had filed an investigative subpoena to former CEO Mike Otworth regarding statements he made about the company's technology, financial projections and business plans. The SEC, months later, concluded that investigation without taking any further action.
The lawsuit alleged the company and its representatives "misled investors in a proxy statement, a registration statement and in press releases."
"Defendants have denied and continue to deny each, any and all allegations of wrongdoing, fault, liability or damage whatsoever asserted in the action," the lawsuit exhibit states.
Settlement of the lawsuit, which named a handful of former company executives including Otworth, is subject to court approval.
"Pursuant to the terms of the securities settlement, all known and unknown claims shall be settled for $12 million in exchange for a complete release of the Company and the individually named defendants in each of the referenced matters," PureCycle said in the SEC filing.
PureCycle, in the SEC filing, indicated the settlement will be paid through a combination of company money as well as insurance coverage. PureCycle's share will be paid through what is known as the company's "self-insured retention" of its directors and officers liability insurance policies. Self-insured retention is an amount of money a company has to pay before insurance coverage kicks in.
PureCycle, in the SEC filing, did not indicate the company's portion of the proposed settlement payment.
The proposed settlement is shaping up to provide 20 cents per share to shareholders. Another 12 cents per share will go to lawyers handling the case who want to take $4 million plus interest of the $12 million settlement along with up to another $400,000 in costs. Combining the two types of payments, the settlement represents an average of 32 cents per share.
The settlement also will pay holders of what are known as derivatives associated with PureCycle shares, including 18 cents per warrant, 3 cents per call option and 3 cents per put option, after deduction of legal fees and expenses. A warrant and call option both give holders the right to buy shares of company stock and a put option gives the holder the right to sell.
Pomerantz LLP of New York is lead council for the plaintiff in the case, listed as William C. Theodore.
"While plaintiffs believe the merits of the case are strong, the proposed settlement is an excellent result and is in the best interests of the settlement class in light of the risks and costs of litigating this action through trial and post-trial proceedings," the proposed settlement states.
PureCycle uses a solvent-based technology to clean used PP to return the resin to a virgin-like quality. The process was developed by Procter & Gamble Co., the consumer goods company, and licensed to PureCycle, which has opened its initial recycling facility in Ironton, Ohio.
The Ironton facility has begun limited production after years of development and continues to work through the start-up phase.
"We had a productive quarter in Ironton and were able to start providing existing and future customers with resin from the commercial facility, so they could begin to sample the material," CEO Dustin Olson said in a recent statement.
"The production activities in the first quarter also allowed our team to further understand this first-of-its-kind technology and how our purification technology processes various post-consumer feedstocks," he said when announcing first quarter results in early May.