Continental Stock Transfer & Trust announced this morning that it has filed an action in the New York Supreme Court against Canna-Global (OTC:CNGL), its CEO and legal counsel over 724,000 SPAC shares the SPAC erroneously issued this summer.
Because these shares were not backed by any type of per-share investment in the SPAC, they would necessarily dilute the SPAC’s cash-in-trust. Continental’s action seeks to compel Canna-Global to buy back an equal number of shares on the open market and cancel them or otherwise compensate shareholders for the dilution in cash as it attempts to now liquidate its trust.
Back in June, Canna-Global agreed to issue hedge fund Liqueous 1,544,531 newly minted shares in the SPAC in return for it taking liability for paying the SPAC’s deferred underwriting fees owed to EF Hutton in the case of a completed business combination.
Liqueous was directly issued 724,000 shares as the first tranche of this and it promptly sold these on the open market. Because of this, the genie cannot be put back into the bottle as they are ordinary shares mixed in with the rest and may have already changed hands several times.
These 724,000 shares represent about 39.4% of Canna-Global’s public float and hold about $8.5 million in trust value, which is the difference that must be made up.
In July, Continental stepped in as trustee to guarantee the payment of full trust value for these 724,000 shares in the event of a liquidation. But, if Canna-Global will not make the trust whole again voluntarily, legal remedies against the sponsor are set to be pursued to ensure this comes from their end.
In particular, this legal action names not only the SPAC but its CEO Gerald Combs and its counsel Rimon PC, who it alleges participated in the improper issuances and then attempted to change the SPAC’s certificate of incorporation after the fact to allow this.
Attempts to break the trust are bad precedent for all sides of the SPAC ecosystem, so this is a case that is likely to draw attention from all sides.
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