NEW YORK, May 30, 2024 (GLOBE NEWSWIRE) -- Bragar Eagel & Squire, P.C., a nationally recognized stockholder rights law firm, announces that a class action lawsuit has been filed against Charge Enterprises (“Charge” or the “Company”) (NASDAQ: CRGEQ) in the United States District Court for the Southern District of New York on behalf of all persons and entities who purchased or otherwise acquired Charge securities between December 15, 2021 and February 28, 2024, both dates inclusive (the “Class Period”). Investors have until July 28, 2024 to apply to the Court to be appointed as lead plaintiff in the lawsuit.
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Charge is an electrical, broadband, and electric vehicle (“EV”) charging infrastructure company. Its business, including through its various subsidiaries, has two primary segments: infrastructure, which has a focus on EV charging stations and wireless network Case 1:24-cv-04056 Document 1 Filed 05/28/24 Page 5 of 32 6 communications; and telecommunications, which provides connections for voice calls and data to global carriers.
The complaint alleges however, the events that give rise to this Class Action are not connected to Charge’s primary business ventures or revenue streams, but rather stem from reckless oversight of Charge’s capital and materially misleading statements and omissions in connection therewith.
Charge Enterprises initially incorporated under the name “E-Education Network, Inc.” in 2003 and changed its name to GoIP Global Inc. (“GoIP Global”) in 2005. In April 2020, GoIP Global acquired Transworld Holdings, Inc. In August 2020, GoIP Global changed its name to Transworld Holdings, Inc. In January 2021, Transworld Holdings, Inc. changed its name to Charge Enterprises, Inc.
Following this series of corporate transactions, Charge was uplisted with the NASDAQ Stock Exchange on April 12, 2022 with the ticker symbol “CRGE.”
Since at least the fourth quarter of 2020, Charge and its predecessor entities have employed KORR Acquisitions, a registered investment advisor controlled by Orr and Cori Joy Orr, to manage certain of its investments and excess liquidity.
On June 19, 2020, GoIP Global disclosed that it “intends to engage KORR Acquisitions Group, Inc. as a consultant to provide certain consulting and advisory services to GOIP for fees to be agreed upon. Kenneth Orr, Director, President and Chief Financial Officer of [GoIP], is Principal Operating Officer of KORR Acquisitions Group, Inc. KORR Acquisitions Group, Inc. is managing member of KORR Value, LP.”
During the fourth quarter of 2020, GoIP Global and KORR Acquisitions entered into what Charge described as an “informal at-will arrangement” under which the Company entrusted KORR Acquisitions to “provide investment advisory services on an as-needed basis” (the “Informal Arrangement”). Specifically, Charge granted KORR Acquisitions “discretionary authority, without prior consultation with the Company, to buy, sell, trade and allocate in and among stocks, bonds and other securities and/or contracts relating to the same,” on an “as-needed basis.” The Company stated that the value of the assets it invested with KORR Acquisitions under the Informal Arrangement “shall not exceed 20% of the Company’s total assets.”
On December 15, 2021, before Charge was uplisted to NASDAQ and while its common stock was still trading over the counter, the Company’s registration statement (filed on December 10, 2021 on Form S-1), became effective. The Registration Statement described the Informal Arrangement as an “at-will” agreement for KORR Acquisitions to invest in “marketable securities” on the Company’s behalf. The Registration Statement reiterated that the investments were limited to “20% of our assets, and of that, less than 5% in illiquid assets,” and stressed that “[w]e continuously monitor and review the value of our investments, including, but not limited to conducting a mark-to-market valuation of our investments on a weekly basis, and, if ever we exceed 20%, we will liquidate marketable securities to stay within our intended maximum investment of 20% of our total assets.”
Before its uplisting on NASDAQ, Orr was the single largest stockholder in Charge, controlling more than eighty percent of the Company. However, in connection with that uplisting, NASDAQ and the SEC raised a number of questions regarding Orr’s involvement with Charge, particularly his having a majority ownership in the Company, his position as the Chairman of the Board of Directors, and the Informal Arrangement with the Company.
Given NASDAQ and the SEC’s concerns, Orr accordingly divested his interest in Charge to less than ten percent beneficial ownership of the Company, and stepped down as the Chairman of the Board of Directors effective September 14, 2021.
Charge and KORR Acquisitions operated under the Informal Arrangement until June 2022, at which time they entered into a written Special Advisor Agreement whereby KORR Acquisitions agreed to “manage the Company’s investment account” in exchange for a $500,000 up-front payment and a monthly payment of $25,000. The agreement had a term of 1 year.
In early to mid-2023, Charge informed Orr that it would require the return of certain Company funds to satisfy certain Company liabilities that were to come due and payable on in November 2023. Specifically, in April 2023, Denson informed Orr that the Company would require the complete return of its invested funds by November 1, 2023 to address (1) certain accounts payable of its subsidiary, PTGi International Carrier Services, Inc., and (2) the outstanding debt due to its senior lender, Arena Investors, LP (“Arena”).
Charge’s obligations to Arena, which were to become due and payable on November 19, 2023, were structured under two securities purchase agreements (the “Arena Notes”). In total, Charge had an outstanding principal balance of $27.8 million due under the Arena Notes. In addition, Charge had a number of other outstanding debt obligations under other loan agreements that, while not immediately due in November 2023, contained cross-default provisions.
Between May and November of 2023, Charge communicated frequently with Orr about the need for Orr and KORR Acquisitions to return the funds the Company had invested with KORR Acquisitions to enable the Company to satisfy its various debt obligations.
In May 2023, Denson emailed Orr requesting the full withdrawal of Charge investments held by KORR Acquisitions.
Orr and KORR Acquisitions did not return the funds as requested to do so in May. Schweller emailed Orr on July 25, 2023 requesting the immediate return of $10 million from the Company’s investment accounts.
Despite its previous requests for the return of Company funds, as of August 22, 2023, Charge still had $14 million invested with and under the management and control of KORR Acquisitions. On that date, Denson again communicated with Orr about a schedule for Orr and KORR Acquisitions to return the Company’s invested capital. Under the drawdown schedule devised that day, Orr was to return to Charge $3 million by the first week of September 2023, $3 million between September 15-30, 2023, $6 million between October 15-30, 2023, and the remainder between November 1-10, 2023. None of this – including that prior requests had been made and ignored, nor the drawdown schedule – was disclosed to investors.
Orr and KORR Acquisitions failed to abide by this drawdown schedule. Despite agreeing to return a total of $6 million in September, Orr and KORR Acquisitions had only returned $2.25 million by the end of that month. Further, and despite their agreement to return $6 million in October, Orr and KORR Acquisitions only returned $1.75 million of Company funds in October 2023. Thus, by the end of October, and despite agreeing to return $12 million of Company funds by the end of October, Orr and KORR Acquisitions had only returned $4 million.
On November 1, 2023, Denson emailed Orr, reminding him that Charge’s “loan with Arena is due this month . . . we need the Charge money returned ASAP this week.” Orr did not respond to this email in writing.
On November 2, 2023, Denson and Orr spoke on the phone to discuss Orr and KORR Acquisitions’ failure to adhere to the original drawdown schedule. On that call, Orr proposed a revised drawdown schedule, offering to return $1 million by the end of the day, $3 million on November 6, $3 million on November 14, and the remainder by the “end of 2023, or perhaps in 2024.”
On November 3, 2023, Denson reiterated to Orr the need for an expeditious return of the funds, and that Charge was experiencing financial harm as a result of Orr’s failure to return the funds, which could impact the Company’s ability to continue as a going concern. That same day, Denson and Orr discussed a third drawdown schedule: $1 million on November 3, $3 million early in the week of November 6, and $6.75 million by November 13 or 14. Defendants did not cause Charge to inform investors of these developments either.
Despite the various drawdown agreements, Orr only returned $800,000 on November 3, and $200,000 on November 6.
Thus, by early November, 2023, after months of failing to receive the requested Company funds from Orr and KORR Acquisitions, Defendants knew that Charge was facing serious undisclosed liquidity problems. As Denson reminded Orr, these funds were “critical to [Charge’s] liquidity,” despite the Company’s representation several weeks prior that it had more than $51,000,000 in cash and cash equivalents. Defendants therefore knew and understood that, if Orr and KORR Acquisitions failed to return the Company funds as requested, a default on the Arena Notes was nearly certain, and that this would lead to an “imminent cascade of negative consequences,” namely, the invocation of cross-default provisions in the Company’s other debt instruments.
But, as described below in further detail, Defendants continued to paint a rosy picture of Charge’s financial condition throughout the fall of 2023, despite knowledge that the funds held by KORR Acquisitions were “critical” to the Company’s liquidity. In fact, as late as November 8, 2023, Charge expressed its expectation “to have sufficient resources to meet [its] current operating liquidity and capital requirements for the next 12 months.”
The complaint states that the situation came to a head on November 13, 2023, when Orr advised Biehl that the Company’s funds were invested in KORR Value, a limited partnership whose General Partner is KORR Acquisitions. And, as Orr advised Biehl, the terms of the KORR Value Limited Partnership Agreement, dated May 9, 2020, make Charge a limited partner in KORR Value and grant to KORR Acquisitions, as General Partner, the “sole and absolute” right to limit redemptions of limited partnership interests. In accordance with KORR Value’s Limited Partnership Agreement, Orr informed Charge that KORR Acquisitions would be unable to return the requested funds because they were “cross-collateralized” with other accounts and that those accounts were “under water.”
Charge first informed the market of the dire situation it faced on November 21, 2023 in a Form 8-K filed with the SEC. Despite its announcement that it had more than $51,000,000 in cash several weeks prior, the Company stated that it had received a default notice from Arena, and announced that its prior belief that it had “approximately $9.9 million of Company assets . . . in the form of cash, cash equivalents, marketable securities or similar readily liquid assets” was false; instead, these funds had actually been invested in KORR Value and were thus “not immediately able to be liquidated or readily accessible.” The Company further warned that if it “continues not to have sufficient liquidity to pay the principal and interest on the [Arena] Notes . . . these circumstances could result in a default under other of the Company’s debt instruments and agreements that contain cross-default provisions.” As the Company explained, this situation would likely “have a material adverse effect on the Company’s liquidity, financial condition and results of operations, and may render the Company insolvent and unable to sustain its operations and continue as a going concern.”
On December 6, 2023, in a Form 8-K filed with the SEC, Charge informed the market that it had received several additional default notices from Arena. The December 6, 2023 8-K further stated that the Company was ceasing the operations of certain of its telecommunications subsidiaries in an effort to preserve liquidity.
On January 25, 2024, in a Form 8-K filed with the SEC, Charge informed the market that the Company had received a foreclosure notice from Arena stating that, to satisfy the Company’s outstanding indebtedness, Arena would be holding an auction, pursuant to the Uniform Commercial Code, to liquidate 100 percent of the equity interests in certain Charge subsidiaries at auction.
On February 28, 2024, in a Form 8-K filed with the SEC, after months of restructuring efforts, Charge announced that it had entered into a Restructuring Support Agreement with two affiliates of Arena, which was to be implemented through the commencement of a voluntary Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware.
On February 29, 2024, NASDAQ suspended trading of Charge common stock.
On March 7, 2024, Charge filed its voluntary petition for bankruptcy under Chapter 11. See In re Charge Enterprises, Inc., Bankr. Case No. 24-10349 (Bankr. D. Del.).
According to the filed complaint, during the Class Period, Defendants issued materially false and misleading statements regarding the nature of Charge’s relationship with KORR Acquisitions, the degree of control that KORR Acquisitions exercised over Charge assets that were “critical” to the Company’s liquidity, and the nature of the investments that KORR Acquisitions held on the Company’s behalf, as well as materially false and misleading statements about the Company’s risk policies, procedures, and compliance oversight functions, exposing the Company and its investors to substantial losses.
If you purchased or otherwise acquired Charge shares and suffered a loss, are a long-term stockholder, have information, would like to learn more about these claims, or have any questions concerning this announcement or your rights or interests with respect to these matters, please contact Brandon Walker or Marion Passmore by email at investigations@bespc.com, telephone at (212) 355-4648, or by filling out this contact form. There is no cost or obligation to you.
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Bragar Eagel & Squire, P.C. is a nationally recognized law firm with offices in New York, California, and South Carolina. The firm represents individual and institutional investors in commercial, securities, derivative, and other complex litigation in state and federal courts across the country. For more information about the firm, please visit www.bespc.com. Attorney advertising. Prior results do not guarantee similar outcomes.
Contact Information:
Bragar Eagel & Squire, P.C.
Brandon Walker, Esq.
Marion Passmore, Esq.
(212) 355-4648
investigations@bespc.com
www.bespc.com
