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Loop Drops 6% On SEC Subpoena; Roth Sees 104% Upside

Loop Industries has disclosed the receipt of a subpoena from the US Securities and Exchange Commission (SEC), which sent its shares down more than 6% in Friday’s extended trading session.

Loop (LOOP) said that the SEC is demanding information from the plastics recycling company, including information regarding testing, testing results and details of results from its Gen I and Gen II technologies, as well as from its partnerships and agreements.

“The SEC informed the Company that its investigation does not mean that the SEC has concluded that anyone has violated the law and that the investigation does not mean that the SEC has a negative opinion of the Company,” Loop said in a SEC filing.

In addition, Loop reported that on October 13, a purported class action lawsuit was filed in the US District Court for the Southern District of New York, against some of the company’s officers. The allegations in the complaint claim that the defendants violated certain sections of the Securities Exchange Act of 1934 by making “materially false and/or misleading statements, as well as failing to disclose material adverse facts about the company’s business, operations, and prospects, which caused the company’s securities to trade at artificially inflated prices”. Th plaintiff seeks damages on behalf of a class of purchasers of Loop’s securities between September 24, 2018 and October 12, 2020.

Shares in Loop have tanked 36% over the past 5 days as short seller Hindenburg Research issued a report calling the company a “smoke and mirrors show with no viable technology” and announced that it submitted its findings to regulators. (See LOOP stock analysis on TipRanks)

Hindenburg alleges that the recycling company, which has scored agreements with major manufacturers, including Coca-Cola, PepsiCo, Evian, Danone and L’Oreal, has claimed breakthroughs, which “simply don’t exist”. The short seller’s investigation into Loop spanning over 6 months, has included speaking with multiple former employees, company partners, polymer/plastic experts, and competitors.

One of the two analysts recently covering the stock, Roth Capital’s Gerry Sweeney said that the Hindenburg report "takes key information and either misrepresents it or takes it out of context to create an unfounded level of concern”.

Sweeney, who reiterated a Buy rating on the stock with a $16 price target (104% upside potential) added that a review of Loop’s SEC filings demonstrates that the report’s allegations are "false or taken out of context," which "should lead investors to question the authenticity of the assertions if not the report in whole".

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