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Today, Campaign for Accountability (CfA) asked the Securities and Exchange Commission (SEC) to investigate the proposed Special Purpose Acquisition Company (SPAC) transaction between DeepGreen Metals Inc. and Sustainable Opportunities Acquisition Corp. (SOAC), alleging required disclosures are inadequate. The filers appear to have failed to disclose material information regarding the backgrounds and litigation histories of key officers and directors.
Read the complaint.
CfA Executive Director Michelle Kuppersmith said, “DeepGreen’s SPAC shortcut and the notable omissions in SOAC’s proposal suggest it may be attempting to gain access to U.S. capital markets while avoiding the due diligence, underwriting, and regulatory requirements of a traditional IPO. The SEC should not allow these companies to use the lower filing requirements of a SPAC to hide material information from investors.”
Last week, the SEC charged a SPAC, its CEO, its target and the target’s leaders with violations of securities law for misleading statements in public filings associated with the proposed merger and failure to meet its due diligence obligations to investors. SEC Chair Gary Gensler noted the case “illustrates risks inherent to SPAC transactions, as those who stand to earn significant profits from a SPAC merger may conduct inadequate due diligence and mislead investors.”
Among the most glaring omissions in SOAC’s disclosure is it fails to mention DeepGreen chief executive officer Gerard Barron’s position as a shareholder and director of an environmental remediation company, Windward Prospects Limited, created for the sole purpose of restoring the polluted Fox River in Wisconsin, but which went bankrupt on his watch. While fighting to avoid paying for the cleanup, the company invested $7.9 million in DeepGreen, giving it a 5.4% stake in the venture. Before going bankrupt, Windward’s directors allegedly transferred the DeepGreen shares to themselves, “in lieu of unpaid amounts” they claimed Windward owed them as compensation. It appears that Windward’s administrators may still be investigating the nature of these transactions.
Key DeepGreen stakeholders, including Barron, were also involved in the Canadian company Nautilus Minerals Inc., the original holder of at least two undersea mining concessions now held by DeepGreen. When Nautilus filed for bankruptcy in 2019, 41 shareholders wrote to the court handling the bankruptcy, saying they were misled, and that company assets – including potentially valuable Nautilus concessions in Papua New Guinea and Tonga – were transferred to a new entity “at far below assessed value.” This entity was Deep Sea Mining Finance (DSMF), which is jointly owned by Russian oligarch Alisher Usmanov, who reportedly has connections to Vladamir Putin. In March 2020, DeepGreen issued 7.8 million shares of its stock to DSMF plus a deferred consideration of $3.44 million in exchange for the Tonga subsidiary, suggesting that Putin allies may be substantial shareholders in DeepGreen.
The SOAC filing also omits material information regarding SOAC chairman Scott Honour, who has been involved in several lawsuits alleging fraud and questionable business practices. While SOAC claims there is no “governmental proceeding currently pending or to SOAC’s knowledge threatened against us or any members of SOAC’s management team,” a company that Honour controls and where he serves as director appears to be under scrutiny by the Congressional Select Subcommittee on the Coronavirus Crisis. After the committee requested that EVO Transportation & Energy Services Inc. return $10 million it received from the Paycheck Protection Program (PPP) in the spring of 2020 because it is not a small business and, therefore, was not intended to be a beneficiary of the loan program, the company refused leading Committee Chair James Clyburn (D-SC) to pledge to investigate the firm’s involvement in the loan program.
Also worthy of scrutiny is how DeepGreen obtained exploration rights in Nauru. Around the same time that DeepGreen was granted the rights to explore the small island nation, the company awarded a scholarship to the niece of Nauru’s former Trade Minister Mike Aroi, whose oversight responsibilities included deep-sea mining. This could potentially constitute bribery punishable by civil and criminal penalties under the Foreign Corrupt Practices Act, which prohibits payments to foreign government officials in exchange for assistance in obtaining or retaining business.
The SPAC filing comes at a time when the SEC, under the Biden Administration, announced a more aggressive agency-wide approach to disclosures about how companies’ actions impact the climate crisis, a call echoed by former Congressman Joe Kennedy. As a company whose pitch to investors relies heavily on the notion that deep sea mining could solve certain environmental issues, DeepGreen’s merger should be treated with enhanced – not relaxed – scrutiny.
Ms. Kuppersmith continued, “Omitting even one questionable past connection should be disqualifying for DeepGreen; taken together, the filing paints a picture of irresponsible actors trying to circumvent important oversight. The SEC must examine this deal closely, ensure all required disclosures have been made, and take appropriate enforcement action if material information has been improperly withheld.”
Campaign for Accountability is a nonpartisan, nonprofit watchdog organization that uses research, litigation, and aggressive communications to expose misconduct and malfeasance in public life and hold those who act at the expense of the public good accountable for their actions.