JD Vance’s company invested in food company faces legal action

COLUMBUS, Ohio (AP) — A high-tech indoor agriculture company in Appalachia promoted by JD Vance and funded in part by his venture capital firm is facing five lawsuits alleging it misled regulators and deceived Investors.

The shareholder lawsuits against Morehead, Kentucky-based AppHarvest were filed between November 2021 and August 2022 by individual investors and a county retirement association. They allege the agriculture startup, where Vance — who is the Republican candidate for U.S. Senate from Ohio — also briefly served on the board, repeatedly overstated its hiring and retention numbers, including in U.S. Securities and Exchange Commission documents that investors use to evaluate companies. The lawsuits also allege that investors were misled by press releases, analyst presentations and other public statements, including an interview the company’s chief executive gave to The Associated Press touting a hiring frenzy.

Such lawsuits were not unexpected as AppHarvest’s newly disclosed stock price plummeted. Since last year, the stock incentive and stock purchase plans that Vance and other AppHarvest directors have in place for the company’s mostly Appalachian workforce have lost hundreds of millions of dollars in value. Ohio teachers also lost more than $100,000 in retirement savings in AppHarvest’s decline before the State Teachers Retirement System of Ohio sold its 16,000 shares in June.

The lawsuits, however, could raise additional questions about one of the central narratives of Vance’s campaign: that the “Hillbilly Elegy” author left behind a lucrative business career in San Francisco’s tech world to focus on revitalization of his native Appalachia. Some of these efforts have already come under scrutiny. In a region that has been devastated by opioid addiction, for example, he has come under fire for starting an anti-drug charity that enlisted a doctor linked to a big pharmaceutical company. Vance’s campaign said he was unaware of those links.

AppHarvest said the lawsuits were without merit. Vance, the Republican nominee for a critical U.S. Senate seat in Ohio, is not named in any of the lawsuits. He left AppHarvest in April 2021 before announcing his Senate campaign.

Vance’s campaign said his Cincinnati-based company, Narya Capital, is itself an investor in AppHarvest and would suffer if the lawsuits’ allegations were true. Spokesman Taylor Van Kirk also pointed out that the shares were all filed after Vance left the board.

Colin Greenspon, co-founder and managing partner of Narya, which lists Vance as “partially furloughed,” said the company continues to support AppHarvest.

“We believe AppHarvest is transforming the American food supply in ways that will impact generations to come,” he said in a statement.

Vance is running against Democratic U.S. Representative Tim Ryan in one of the nation’s most competitive Senate races. He’s been touting AppHarvest since at least 2020, during the coronavirus pandemic.

The company grows tomatoes and other fruits and vegetables using sustainable farming methods on some of the world’s largest high-tech indoor farms, its website says. It has described its mission in SEC filings as empowering Appalachia, driving positive environmental change in the agriculture industry, and improving the lives of its employees and the community.

“The last few months have taught us that our food system is a little more insecure than we thought,” Vance said in an August 2020 article in Greenhouse Grower. “AppHarvest will change that, and it will do so by building a sustainable, sustainable business in Appalachia and investing in the people who call it home.”

The lawsuits, which allege inaccuracies dating back to January 2021, argue that training AppHarvest provided to workers was “a joke,” that its workforce “suffered massive attrition, churn and absences related to the COVID-19 that negatively affected productivity” and that its first crop last year was “ravaged by operational issues” and 50% was wasted. The litigation repeatedly seeks indeterminate damages, governance reform and greater transparency at AppHarvest and, in two cases, jury trials.

AppHarvest’s attorneys pushed back.

“This case is a classic example of a plaintiff trying to turn a company’s reduction of its annual revenue forecast into a violation of federal securities laws,” they told the U.S. District Court for the Southern District of New York in a filing last month. “These laws and the relevant pleading standards, however, prohibit pleading fraud after the fact. And for good reason: markets are complex and financial forecasts made months or even a year in advance, especially for a young public company like AppHarvest, are always uncertain. »

Vance’s level of involvement with the company while a director is unclear. He was among a list of celebrities, including media mogul Martha Stewart, who backed AppHarvest early on, and he spoke positively about the company on Fox Business News on Feb. 1, 2021, capping his stock the day it went public in a combination venture with Novus Capital, a special purpose acquisition company, or SPAC.

“What we saw as an opportunity here was that if you could use technology, bring the point of production a little closer to the end consumer, you could actually pay people a living wage, you could start a business which investors and consumers would be proud of, but you just have better products,” he said.

Narya was an investor in that merger, saying he owned 2.9 million shares of AppHarvest at the time – a stake previously valued at $24.95 per share, or $73 million, and nine days later when it was to be publicly traded, at $36 a share. share, or nearly $106 million. AppHarvest stock closed at $1.57 per share on Thursday, with Narya saying she still owns all of her shares.

Matt Sheridan, a finance lecturer at Ohio State University’s Fisher College of Business, said mergers involving SPACs — also known as shell companies or blank checks — are “bad business for investors.” investors” whose share price as a group fell by around 70%. They are an alternative to a traditional initial public offering, or IPO, to take a company public, with fewer safeguards and less transparency.

A month after AppHarvest was published, the SEC warned investors not to invest in a SPAC “just because a famous person sponsors it or invests in it or says it’s a good investment.” Investment vehicles are now subject to new regulatory control.

“Anytime you have a meltdown like that, it’s going to set off alarm bells,” Sheridan said. “And if there were misleading statements, fraudulent statements, that can lead to legitimate prosecution.”

AppHarvest spokeswoman Darla Turner said the lawsuits had no merit and the business was thriving. It is on track to quadruple its agricultural network by the end of the year, she said, adding locations specializing in salad greens and berries. Turner said AppHarvest is living wage certified and offers a robust employee benefits package.

Vance resigned from AppHarvest’s board of directors two months after its publication, on April 9, 2021, to operate its Senate. He had served since August 2020. The company told regulators his departure was “not the result of a disagreement between the company and Mr. Vance on any matter relating to the company’s operations, policies or practices.”

Although Vance’s name does not appear anywhere in the lawsuits, a watchdog group focused on private equity and venture capital firms questioned his actions surrounding the company.

“As a venture capitalist, JD Vance promised to invest in Appalachia and touted AppHarvest stock, but then bailed out before the company’s problems were revealed,” said Jim Baker, director Executive of Private Equity Stakeholder Action. “Venture capitalists typically try to increase the value of the companies they invest in, but AppHarvest’s value plummeted shortly after its IPO.”

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