A pair of Connecticut residents are suing the owners of an airport spa chain, claiming that they purposefully undervalued the firm’s real estate portfolio.
The suit, which Connecticut residents Moreton Binn and Marisol Binn filed against XpresSpa Group, accuses the owners trying to make the stock price and market capitalization of the company fall from 2016 up through the present. The directors named as defendants in the suit either have a stake in a credit facility held by Rockmore or bought stock in XpresSpa knowing that its price had been artificially lowered, the suit says.
By artificially driving down the company’s value below the balance of the Rockmore note, the defendants were able to “foreclose on the lease portfolio, convert the Rockmore note into stock at artificially depressed prices, or simply purchase stock for themselves as artificially depressed prices,” the suit says.
The directors’ strategies worked, and between Jan. 4, 2017 and June 28, the stock price of XpresSpa dropped by more than 95 percent, falling from $42.79 to $1.94 per share, according to court documents. The value of the portfolio was consistently between $19 million and $39 million during this time, but the owners did not disclose this to the Securities and Exchange Commission, according to the suit.
XpresSpa made more than $13 million during this time, which the directors claimed they would use to expand its portfolio and revenue, the suit says. However, the portfolio did not grow, the company’s cash dropped from $17 million to $3 million, and none of the money went to pay down the Rockmore note, according to the suit.
“It appears that most of these proceeds were used to pay unwarranted compensation and benefits,” the suit says.
The company’s market capitalization dropped to $3.6 million by April 1, far less than the Rockmore balance of $6.5 million, at which point the directors tried to expropriate the portfolio for themselves by “engineering a default,” the suit says.
Directors Bruce Bernstein, Richard Abbe and Brian Daly tried to transfer control of the Rockmore note to Daly and B3D, a company they controlled, in late April. And in late June, XpresSpa reported that it was talking to B3D about converting $3 million of the Rockmore note’s balance into common shares and warrants for the issuance of common shares, the suit says. The conversion would give B3D control of up to 44 percent of XpresSpa’s common stock.
“In other words,” the suit says, “conversion of the Rockmore note into common stock at these prices constitutes a foreclosure by other means.” These actions allegedly “caused massive damage to the value of the shareholders’ stock.”
The Binns are asking for an amount of damages to be determined at trial and other relief.
The attorney for the plaintiffs and representative for XpresSpa did not respond to requests for comment.