Wrigley Heir, Cannabis Co. Want Investor Fraud Suit Nixed

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Cannabis operator Parallel and its former CEO, who is also heir of the Wrigley chewing gum fortune, have asked a Florida federal court to toss a shareholder suit demanding at least $25 million in damages for purported securities fraud, arguing it is “not a case of fraud but of disappointed investors.”

William “Beau” Wrigley Jr., Georgia-based Parallel and other defendants said in a joint motion to dismiss filed Tuesday that the plaintiffs — TradeInvest Asset Management Co. (BVI) Ltd., First Ocean Enterprises SA and Techview Investments Ltd. — took liberties with the facts. In reality, “it is no secret” that Parallel suffered a series of financial setbacks that made it difficult to maintain the company’s operations and service its debts.

“Unhappy with the performance of their investment, plaintiffs have concocted a federal securities fraud action, accusing the company and certain of its current and former officers of violating federal and state law by fraudulently inducing [TradeInvest and First Ocean] to make a $25 million investment in the company,” the defendants said.

Per the motion to dismiss, the plaintiffs didn’t allege any actionable misrepresentations on the defendants’ part, let alone ones that would amount to federal securities fraud.

The investors filed suit in March, claiming the defendants induced them to invest amid a go-public combination with a blank-check company affiliated with record executive Scooter Braun that eventually failed. The complaint was heavily redacted and didn’t indicate the investment amount.

TradeInvest and First Ocean said they began discussing a “simple agreement for future equity,” or SAFE, investment with the company in July 2021. Per the complaint, a SAFE is a relatively new type of security under which an investor’s cash investment generally converts to equity in the issuing company under specified conditions.

TradeInvest and First Ocean made their investment — which was for $25 million, per Tuesday’s motion to dismiss — on Sept. 27, after the company painted what the investors said was a false picture of its financial condition and induced the pair to supply “criticallyneeded capital.” Techview is a holder of the company’s senior notes, and it is seeking invalidation of certain notes as voidable transactions, according to the complaint.

Parallel had announced in February 2021 that it planned to go public through a combination with Ceres Acquisition Corp., a special-purpose acquisition company affiliated with record executive Braun. The companies had said the deal was valued at more than $1.88 billion. Braun and Ceres aren’t named in the suit.

According to the complaint, Wrigley let the deal “die on the vine (or even orchestrated it so the transaction would never close).”

The company emailed its investors on Wrigley’s behalf on Oct. 1 explaining it was no longer pursuing the SPAC transaction and noting it would “focus on alternative financing avenues to pursue a vast array of growth opportunities,” according to the complaint. The email also noted the company had “just raised and closed a significant initial equity financing through the private markets,” which the investors said referred to the SAFE investment.

Wrigley resigned as CEO of Parallel in November, according to the complaint.

The suit includes counts of common law fraud and violations of the Securities Exchange Act of 1934, Georgia securities laws and the Georgia Uniform Voidable Transactions Act. The investors are seeking an undisclosed award or rescission of TradeInvest and First Ocean’s SAFE investments, plus fees and expenses, and the invalidation of certain notes and debt.

The suit also named as defendants Parallel’s current CEO James Whitcomb, former director James Holmes and founder and former CEO Robert “Jake” Bergmann. It further names PE Fund LP and Green Health Endeavors LLC, purported investment vehicles within Wrigley’s family office.

The defendants argued in Tuesday’s motion to dismiss that the plaintiffs can’t show they reasonably relied on any misrepresentation, since TradeInvest and First Ocean stipulated under the SAFE agreement that they had conducted their own due diligence to their satisfaction and weren’t relying on any statements outside the agreement.

They also argued the plaintiffs didn’t show scienter, or fraudulent intent, noting among other things the trio brought certain claims against all defendants without specifying what conduct each one contributed, in a “quintessential shotgun pleading.”

And the defendants said the plaintiffs brought various allegations concerning the company’s management and business decisions, arguing that to the extent the trio alleges certain debt deals were “improvidently negotiated, the result of corporate mismanagement or conflicted transactions, or bore commercially unfavorable terms, such a claim implicates, at most, fiduciary duties, and is insufficient to create Section 10(b) liability.”

The plaintiffs had alleged Parallel used $3 million of the SAFE proceeds to make a payment back to Wrigley under a $13.5 million note to PE Fund, after he invested $10.5 million in Parallel. They argued Wrigley made it seem like Parallel had raised more than it did, but the defendants said the plaintiffs’ claims only show their dissatisfaction with how Parallel used the money Wrigley invested. ”

Indeed, plaintiffs acknowledge that this $3 million was used to make a contractually required payment with respect to existing company debt,” the defendants said.

Susheel Kirpalani of Quinn Emanuel Urquhart & Sullivan LLP, counsel for the investors, said in an emailed statement Wednesday, “We believe the facts here are particularly egregious and distinguish it from the run-of-the-mill fraud case. We look forward to our case being heard by the court.”

Counsel for Holmes declined to comment Wednesday, and counsel for Bergmann wasn’t immediately available to comment. Counsel for the other defendants didn’t immediately respond to requests for comment Wednesday.

The investors are represented by John O’Sullivan, Michael B. Carlinsky, Susheel Kirpalani and Jacob J. Waldman of Quinn Emanuel Urquhart & Sullivan LLP.

Wrigley, Green Health and PE Fund are represented by Sameer Nitanand Advani, Brittany M. Wagonheim, Craig C. Martin and Aaron J. Hersh of Willkie Farr & Gallagher LLP.

Parallel and Whitcomb are represented by Jeffrey Gilbert and Steven M. Dickstein of Saul Ewing Arnstein & Lehr LLP and Neal Ross Marder, Joshua A. Rubin and Sina S. Safvati of Akin Gump Strauss Hauer & Feld LLP.

Bergmann is represented by Zachary Kobrin, Nicole Villamar and Jonathan Seth Robbins of Akerman LLP and Sarah Brewerton-Palmer and Michael A. Caplan of Caplan Cobb.

Holmes is represented by Jordan Alexander Shaw and Zachary Dean Ludens of Zebersky Payne Shaw Lewenz LLP.

The case is TradeInvest Asset Management Co. (BVI) Ltd. et al. v. William “Beau” Wrigley Jr. et al., case number 9:22-cv-80360, in the U.S. District Court for the Southern District of Florida.

Original Article published at Law360 by Sarah Jarvis and edited by Patrick Reagan. on June 22, 2022.

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