A month after short seller Hindenburg Research issued a bearish report that took down Nikola Corporation (NASDAQ: NKLA) and its chairman Trevor Milton, Hindenburg released a report on Loop Industries Inc (NASDAQ: LOOP) that sent the stock crashing more than 35% on Tuesday.
Loop claims to be a recycling company that breaks down a common form of plastic called PET. In the report, Hindenburg alleges Loop is “smoke and mirrors with no viable technology.”
Hindenburg claims the two brothers that serve as lead scientists for Loop have no post-graduate experience in chemistry and have no previous work experience listed.
“Former employees revealed that Loop operated two labs: one reserved for the company’s two twenty-something lead scientist brothers and their father, where incredible results were achieved, and a separate lab where rank-and-file employees were unable to replicate the supposedly breakthrough results,” Hindenburg said in the report.
CEO Allegations: Hindenburg claims to have documented evidence that the company’s CEO Daniel Solomita encouraged the company’s scientists to lie about the company’s recycling process.
“According to a former employee, Loop’s previous claims of breaking PET down to its base chemicals at a recovery rate of 100% were ‘technically and industrially impossible,’” the report said.
Hindenburg claims Solomita has no formal science education but has promoted other stocks in the past that ultimately imploded.
100% Downside: Hindenburg pointed to a 2018 partnership with Thyssenkrupp that’s now on “indefinite” hold and a 2018 joint venture with Indorama that is “still being finalized” as further evidence of stock promotion without actual production.
Hindenburg concluded that Loop will never generate any meaningful or sustainable sales and said they have submitted their findings to regulators.
“With a market cap of ~$515 million, we see 100% downside to Loop once it burns through its ~$48 million in balance sheet cash,” Hindenburg said.
A representative from Loop Industries was not immediately available for comment.
Benzinga’s Take: Given Hindenburg’s recent track record with Nikola, investors are understandably taking the report seriously. Investors will now wait and watch for the company’s response.
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