On August 10, 2021, Li-Cycle merged with special purpose acquisition company, Peridot Acquisition Corp.
On March 24, 2022, Blue Orca Capital published a report which described Li-Cycle as a “near fatal combination of stock promotion, laughable governance, a broken business hemorrhaging cash and highly questionable Enron-like accounting.” The report also alleged, among other things, that Li-Cycle had “diverted $529,902 in investor capital to the family  of its founders through a series of highly questionable related party payments,” and that its “cash burn is so severe and far above previous guidance” which “will require the Company to raise at least $1 billion . . . in large part by massively diluting current shareholders.” The Report further stated that the Company’s largest customer, Traxys, is not actually a customer, but a “broker or marketing partner that on-sells Li-Cycle’s black mass to end buyers,” and that “not only is Traxys not the end buyer, but the revenue recognized by Li-Cycle is merely Li-Cycle’s initial estimate of the price of the product it expects to receive from the end customer once the final deal is complete.”
On this news, Li-Cycle’s stock fell $0.47, or 5.6%, to close at $7.93 per share on March 24, 2022, thereby injuring investors.
The complaint filed in this class action alleges that throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants failed to disclose to investors that:
- Li-Cycles largest customer, Traxys North America LLC, is not actually a customer, but merely a broker providing working capital financial to the Company while Traxys tries to sell Li-Cycles product to end customers;
- the Company engaged in highly questionable related party transactions;
- the Company’s mark-to-model accounting is vulnerable to abuse and gave a false impression of growth;
- a significant portion of the Company’s reported revenues were derived from simply marking up receivables on products that had not been sold;
- the Company’s gross margins have likely been negative since inception;
- the Company will require an additional $1 billion of funding to support its planned growth (which is a figure greater than the Company raised via the merger); and
- as a result, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis at all relevant times.