Debra Borchardt
A group of disgruntled Parallel cannabis stockholders filed a lawsuit in the Chancery Court of Delaware rejecting the proposed restructuring of the debt-ridden cannabis company.
The lawsuit was originally filed in October but was sealed. Green Market Report was able to review a redacted version that was made public in November.
The 40 Parallel equity holders filed the suit against:
- Former CEO William “Beau” Wrigley Jr.
- PE Fund L.P.
- Green Health Endeavors LLC
- CDXX TransCo LLC
- Talladega L.P.
- Talladega Inc.
- James Whitcomb
- James “Jay” Holmes
- Paul Aronzon
- Vincent Cebula
- Thomas Lynch
- Reece Fulgham
The stockholders allege that the company’s largest creditor, the Talladega Entities, conspired with Wrigley to take control of the company and steal the assets for cheap (by causing the company to deliver these assets to the proposed New Company) while ensuring that Wrigley wasn’t held responsible for the failed transaction with special purpose acquisition corp. Ceres Acquisition.
They claim that Wrigley and his associates damaged Parallel Cannabis to the tune of $1 billion.
How It Began
The case alleges that Wrigley drained the company of its cash flow and then forced the company to take on debts that also benefited Wrigley. It also alleges he pushed the company into a disastrous (and failed) SPAC transaction, deceived new investors to cover up his misconduct, and defaulted the company on its debts to give Wrigley-as-creditor leverage over the company.
After all these machinations, the equity stockholders said they are left with nothing.
Wrigley took over the privately owned Parallel Cannabis in 2018. The lawsuit alleges that he sought to cover up his poor management by pursuing a SPAC transaction. The deal would’ve made Parallel a public company and further enriched Wrigley.
The lawsuit states that, as Parallel prepared for the transaction, Wrigley forced the company to take out tranche after tranche of high-interest, high-fee bailout debts from both of his family office vehicles, PE Fund and Green Health Endeavors.
“Much of this Wrigley bailout debt was furthermore convertible, at Wrigley’s option and in Wrigley’s discretion, to the Company’s senior preferred stock at an outrageous 2.5-to-1 ‘liquidation premium,'” the case states.
The goal was to make the company look as good as possible in order for the SPAC investors to stay on board with the transaction.
SPAC Deal Dies
The case assert Wrigley would still have the ability to cause Parallel to default on its debt that if the SPAC deal didn’t happen. As a creditor, He then call a default on the debt documents and continue to direct the company’s actions through the creditors.
The SPAC investors got cold feet and did decide to back out of the deal. This put Wrigley back into the position of seeking more investor money, which he did through a financial instrument called the SAFE note. The shareholders claim this money was used to pay old debts, including to some Wrigley entities.
This spawned two securities fraud suits, one of which is scheduled to go to trial in October 2024.
The SPAC transaction was terminated in September 2021, and Wrigley resigned as CEO shortly thereafter. During this time, Parallel was defaulting on its debt, which caused Wrigley as the debtor, to gain more leverage over the company.
Stacking The Board
The lawsuit alleges that Wrigley, in his capacity as creditor “proceeded to partner up and conspire with the Talladega Entities, the Company’s then-second-largest, now-largest creditor, and their affiliate, non-party SAF Group’s Managing Principal and CEO Ryan Dunfield, to demand that the Company grant Wrigley and the Talladega Entities ‘governance’ changes in exchange for short-term default relief.”
On Jan. 24, 2022 – just weeks after the demands were allegedly issued – the company added the three new directors – Aronzon, Lynch, and Cebula – to the “three Wrigley-controlled seats on the Board.”
The lawsuit alleges they were installed to make moves that would benefit Wrigley even though he was no longer the CEO. The new directors approved an $80 million, super priority-lien Bridge Financing Agreement with PE Fund (Wrigley’s family office lending entity) and the Talladega Entities, “ensuring that all further financing to the Company would be run through the Wrigley/ Talladega Entities financing spigot, and nowhere else.”
The stockholders claim they attempted to reduce the dependence on Wrigley and his financing companies with a restructuring plan deemed the Carpathia Proposal. However, the board members not associated with Wrigley all resigned, and Reece Fulgham was named the new CEO.
Self Dealing
The remaining directors and Fulgham agreed to a “restructuring” that would give the operating assets of the cannabis company to a New Company majority-owned by the Talladega Entities and minority-owned by certain other creditors. It would also release Wrigley and his entities, including PE Fund and Green Health Endeavors from accused misconduct related to the proposed SPAC transaction.
The stockholders claim that the restructuring plan had been discussed as early as November 2022, but this wasn’t reflected in any company meetings.
What They Want
The stockholders claim that since Parallel is a cannabis company, it wasn’t able to go through normal bankruptcy channels which would have resulted in a trustee that would’ve protected the stockholder’s interest.
From the case, the plaintiffs want:
- An award of $1 billion for the damages caused to the company.
- No indemnification for Wrigley and his associates for their bad behavior.
- A constructive trust created to benefit the Parallel stockholders.
- A restructuring plan following Delaware law.
- New independent directors for the board.
- All legal fees paid.
