An Indiana firm is alleging that RealEats executives used fraudulent behavior to induce investment and also failed to disclose the impending financial peril faced by the Geneva-based farm-to-table meal delivery service.
In a complaint filed in state Supreme Court in Ontario County on Friday, Real Bridge LLC of Indianapolis says RealEats CEO Dan Wise and chief financial officer Rebecca Holderread fraudulently painted an “exceedingly rosy picture” and intended to use any investment not to further company growth but to instead pay down their personal liability to a senior secured lender.
Wise and Holderread “falsely represented that RealEats had a real, achievable path to profitability” and never mentioned that the company was “in financial distress or on the brink of closure,” court papers say.
Founded in 2017, RealEats abruptly shuttered operations on March 1, saying in part that the current economic climate made it impossible to secure necessary capital. The closing left 122 workers without a job.
The death knell came in last week of February, when the unnamed senior secured lender “exercised its legal right to take control of our bank account,” Wise wrote in an email to investors.
The shutdown came 10 weeks after Real Bridge entered into a convertible promissory note and wired $450,000 to Real Eats, which shipped chef-prepared meals to subscribers across the country.
Real Bridge alleges that Wise and Holderread never mentioned that any lender had “sweep access” to the company bank account during a virtual informational session in December, and that an apparent strong financial outlook is why the investment was made on Dec. 22.
“Defendants falsely stated that the purpose of this ‘bridge round’ of investments was to fund additional capital expenditures and other improvements that would allow the company to continue to grow and expand,” the complaint says.
In reality, the complaint states, the defendants knew RealEats was “in dire financial straits, failed to disclose to plaintiff that they had individually guaranteed the company’s debt to its senior secured lender” and “concealed their plan to use plaintiffs invested funds to reduce their personal liability and exposure to that lender.”
The lawsuit, filed by W. Joshua Lattimore of Manhattan-based Faegre Drnker Biddle & Reath LLP, alleges that Wise and Holderread “acted in concert and pursuant to a common design with each other while having actual knowledge of the material misrepresentations of existing facts and giving each other substantial affirmative assistance, concealing information, and failing to act when required to do so.”
Included in the lawsuit was a Jan. 4 email from Wise to investors that “continued to paint a glowing picture” of company finances.
The email said that net revenues had increased by approximately 18.2 percent to a projected $21.3 million in 2022, gross profit margins grew to a record 46.3 percent in November and monthly EBITDA improved “by approximately 45 percent in November vs. January 2022.”
Along with private investment, RealEats received considerable public funding, including up to $3 million from the Excelsior Jobs Tax Credit Program to move into a new 80,000-square-foot facility in June and $2.45 million from Excell Partners, manager of the state-backed FLXFWD Venture Fund.
In 2019, RealEats won the inaugural $1 million grand prize in Grow-NY, a business competition focused on enhancing food and agriculture innovation.
RealEats never gave notice to employees of the impending closure through a Worker Adjustment and Retaining Notification (WARN), as required by state law. Assemblymember Jeff Gallahan (R, C-Manchester) has asked for the attorney general’s office to investigate.
“What RealEats has done to its employees, their families and our community is disrespectful and inhumane,” Gallahan said in a statement on his website.
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