Shareholders of HUB Cyber Security Ltd. has filed a class action against the company, alleging misleading statements related to its recent merger with Mount Rainier Acquisition Corp.
According to the announcement by US-based law firm Robbins LLP, the lawsuit was filed on behalf of two groups of investors.
The first category are those who acquired HUB Cyber Security shares “pursuant to or traceable to” the Offering Documents connected to the merger.
The second includes those who acquired securities of Mount Rainier or HUB Cyber Security between March 23, 2022, and June 13, 2023.
HUB Cyber Security: Trouble in merger
Mount Rainier, a special purpose acquisition company, initiated its merger with HUB Cyber Security (Israel) Ltd in late 2022.
According to an SEC filing, Mount Rainier gained shareholder approval for the merger in January, 2023, the merger was completed in February, and the combined entity’s securities began trading on NASDAQ on March 1, 2023 under the ticker NASDAQ: HUBC.
Following the disclosures, HUB’s stock experienced a significant decline, closing at $0.3918 per share on July 5, 2023, representing a 75.26% decrease from its initial closing price.
The lawsuit alleges that the Offering Documents and defendants made false and misleading statements, failed to disclose crucial information, and downplayed deficiencies in compliance controls and procedures.
The complaint further claims that HUB Cyber Security had unexplained expenses, potential funds misappropriation, and faced an increased risk of being delisted from NASDAQ.
HUB Cyber Security and allegations of misinformation
The complaint alleges that the Offering Documents and defendants made false and/or misleading statements and/or failed to disclose crucial information.
Firstly, they did not secure the promised PIPE financing for the merger. Secondly, the current management team, including defendant Moshe, would not lead HUB after the merger.
Moreover, the Company understated the seriousness of deficiencies in its compliance controls, disclosure controls, and internal controls over financial reporting.
It also exaggerated its ability to address these issues effectively. As a result, a senior officer of the Company incurred unexplained expenses, and there were suspicions of funds being misappropriated or fraudulently obtained.
The shareholders allege that these actions increased the risk that the company would be unable to submit its periodic financial reports to the SEC on time, as required by NASDAQ’s listing rules.
Consequently, the company was at an increased risk of being delisted from NASDAQ due to these non-compliance concerns, they claim.
Shareholders who believe they are similarly situated and wish to participate in the class action have until September 4, 2023, to file their motion with the court to act as a lead plaintiff. A lead plaintiff represents other class members in directing the litigation.
The law firm also offered the option for investors to remain as absent class members without taking any action.
It didn’t help that the deal was executed when the Israel-registered company was embroiled in finance misappropriation allegations.
What went wrong with HUB Cyber Security CEO?
The precent management HUB Cyber Security management, led by CEO Uzi Moskowitz, and the shareholders, headed by Guy Ben-Artzi, in April, initiated a probe on alleged embezzlement activities involving former CEO and founder Eyal Moshe and his partner Ayelet Bitan.
The investigation centered on the misappropriation of millions of shekels from the company’s funds for personal use, including the acquisition of a house in Tel Aviv and related expenses, reported Calcalist.
According to the Calcatech report, during the new management’s review of the company’s records, concerns arose about the accuracy of the reported transactions.
Specifically, one transaction from 2021 involved the claimed sale of servers and software to a customer for NIS 81 million (approximately $22 million).
The second transaction, dated 2022, indicated a $10 million software purchase from a European company, potentially German, along with a contingent payment of $12 million.
The preliminary findings of the investigation have been communicated to Hub Security, which subsequently submitted a comprehensive report to Nasdaq.
Weeks later, the Israel Securities Authority also initiated an extensive investigation into the operations of the Hub Security, reported Calcatech.
Eyal Moshe, though ousted from practical control, maintains his formal position as president of the company. He acknowledged the ongoing investigation and stated that he is reviewing the matter.