Blank-check, or special-purpose acquisition companies (SPACs), raised more than $10 billion through initial public offerings last year, according to The Wall Street Journal. But they have a spotty history, and critics say they are extremely risky for investors. Just this week the Securities and Exchange Commission rejected an effort by the New York Stock Exchange to loosen listings rules for SPACs.

Charges filed Thursday against an Israeli company Ability, and two of its executives, underscore how risky these vehicles really are.

The Securities and Exchange Commission filed a complaint in federal district court in Manhattan alleging that Ability, which sold cell phone and satellite interception products, and its executives defrauded shareholders of a Florida-based SPAC, Cambridge Capital Acquisition, that it merged with in 2015. The transaction resulted in an eventual loss of $60 million to Cambridge Capital Acquisition investors (out of the $81 million raised in the SPAC’s 2013 IPO).

The SEC’s complaint charges the defendants with violations of the antifraud and proxy statement provisions of the federal securities laws, and seeks permanent injunctions, disgorgement with prejudgment interest, and penalties. The complaint also seeks an officer-and-director bar against Ability’s CEO, Anatoly Hurgin.

“We allege that Cambridge shareholders were duped into merging the SPAC with Ability, resulting in large losses to investors,” said Michele Wein Layne, director of the SEC’s Los Angeles regional office. “As alleged in our complaint, the defendants lied to shareholders to make sure the ill-fated merger was approved so they could line their pockets with tens of millions of dollars from the merger.”

SPACs are formed to raise capital for a merger or acquisition within a set timeframe. According to the complaint, Cambridge Capital had to consummate a merger by December 2015 or it would have been required, without an extension of the SPAC term, to return all of the capital to shareholders.

To convince Cambridge Capital shareholders to vote for a merger with Ability, CEO Hurgin and chief technology officer Alexander Vladimir Aurovsky, according to the SEC, lied about Ability’s ownership of a “game-changing” cellular communications product and claimed the company had a large backlog of product orders from a police agency in Latin America.

According to the SEC, Ability, in fact, did not own the new game-changing product, and any revenue from the sale of the product would have had to be shared with its real owner. Also, the majority of Ability’s so-called order backlog was not supported by actual, signed purchase orders. “A large part of the order backlog was with Ability’s largest and most significant customer – a Latin American police agency – [and the orders] were based only on oral agreements with management who had been terminated as a result of the then-recent prison escape of a notorious international narcotics trafficker,” the SEC said.

As alleged in the complaint, Ability and the two executives profited from the merger, with Ability receiving about $19 million and Hurgin and Aurovsky each receiving approximately $9 million plus $6 million each in put options.

In May 2016, Ability Inc., the newly named public company, announced in its fiscal year 2015 financial statements that it did not, in fact, own the game-changing product; rather it was subject to a short-term reseller agreement under which Ability was required to share 50% of its sales revenues with the true owner. It also disclosed that product orders and the pipeline of future orders had failed to materialize and that revenue in the fourth quarter of 2015 had dropped precipitously, resulting in net losses.

In presentations to Cambridge Capital investors, Ability had claimed $148 million in backlog and pipeline revenue and forecast fiscal year 2016 revenue of $108 million. In reality, Ability would come to recognize only $16.5 million of revenue in fiscal year 2016 and post a net loss of $8.1 million.

According to the SEC, despite claims in the transaction’s proxy statement, Cambridge had not conducted independent due diligence on Ability’s products, backlog, or pipeline.

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