Pomerantz Appointed Lead Counsel in TMC Securities Litigation

On March 7, 2022, U.S. Magistrate Judge Sanket J. Bulsara of the Eastern District of New York appointed Pomerantz LLP as Lead Counsel on behalf of Co-Lead Plaintiffs, Point12 Diversified Fund, LP and Kyle Autry, and the class, in Carper v. TMC Metals Company Inc., 21-cv-5991 (E.D.N.Y.). This securities action concerns allegations that TMC the Metals Company, Inc. (“TMC” or the “Company”) overpaid for licenses, inflated expenses and affiliated with bad actors.

TMC is a Canadian deep-sea minerals exploration company focused on the collection, processing, and refining of battery-grade metals from the seafloor. The Company’s purported mission is to supply metals for electric vehicle batteries with the least possible negative environmental and social impact.

Allegations against TMC include that: (i) the Company had significantly overpaid undisclosed insiders for its acquisition of Tongo Offshore Mining Limited (“TOML”); (ii) TMC had artificially inflated its Nauru Ocean Resources, Inc. (“NORI”) exploration expenditures to give investors a false scale of its operations; (iii) the Company’s purported 100% interest in NORI was questionable, given prior disclosures to the International Seabed Authority (“ISA”) that NORI was wholly owned by two Nauruan foundations and that all future income from NORI would be used in Nauru; (iv) TMC had significantly downplayed the environmental risks of deep-sea mining polymetallic nodules and failed to adequately warn investors of the regulatory risks faced by the Company’s environmentally risky exploitation plans; (v) TMC’s private investment in public equity (“PIPE”) financing was not fully committed and, therefore, the Company would not have the cash necessary for large sale commercial production; and (6) as a result of the foregoing, the Company’s valuation was significantly less than Defendants disclosed to investors.

On September 13, 2021, Bloomberg published an article titled “$500 Million of SPAC Vanishes Under the Sea: The Metal Company’s controversial plan to mine the seafloor is a tale of questionable green credentials and SPAC disappointment.” The article revealed that “two unidentified investors [failed] to provide funds comprising two-thirds of TMC’s $330 million PIPE.” The article explained that PIPEs are “supposed to provide a guaranteed financial backstop so the target receives at least some cash” and “also help validate the value the SPAC has ascribed to the target.” The failure of some of TMC’s PIPE investors was “embarrassing” and problematic because TMC “estimates that $7 billion is needed for large-scale production.” Moreover, according to the article, “the scale of TMC’s cash shortfall suggests it has yet to convince capital markets that its multi-billion valuation is justified, given the risks.”

The Bloomberg article also questioned TMC’s “green credentials,” revealing that “[s]ince the SPAC deal was announced in March, more than 500 scientists have signed a letter calling for a moratorium on deep-sea mining until the environmental risks are better understood.”

On this news, TMC’s shares fell $2.45 per share, or 20%, over the next two trading days, to close at $10 per share on September 15, 2021.

Then, on October 6, 2021, market research firm Bonitas Research released a report (the “Report”) detailing multiple issues plaguing TMC, including that: (i) the Company had overpaid on licenses to potential undisclosed insiders; (ii) the Company had artificially inflated exploration expenses by more than 100% in order to mislead investors about the scale of its operations; (iii) there are reasons to question the Company’s ownership claim of NORI; and (iv) the Company’s history of affiliating with bad actors. The Report stated that “TMC siphoned US$43 million in cash and stock to undisclosed insiders by overpaying for Tong Offshore Mining Limited (‘TOML’).” According to the Report, the TOML should be valued similarly to the licenses of NORI and Marawa at US$250,000 each. The Report explained that NORI’s previous owner, Nautilus Minerals Inc. (“NMI”) valued the TOML exploration license in its historical annual reports at zero.

On this news, TMC shares fell a further $0.32 per share, or 7.2%, to close at $4.14 per share on October 6, 2021.