ASIC takes aim at Magnis, chair Frank Poullas over failure to reveal battery failures

The corporate regulator has launched legal action against Magnis Energy Technologies and its chair Frank Poullas, alleging they failed to disclose material information to investors.

Magnis US managing director Hoshi Daruwalla and chair Frank Poullas. Picture: John Feder

As court papers from the corporate regulator landed on the desk of Magnis Energy Technologies, which stands accused of repeatedly misleading shareholders for more than a year on the fate of its US battery factory, the ASX-listed energy and graphite company ruled off accounts showing fewer than four days funding remaining.

Magnis, once a darling of the ASX’s small caps, now stands accused of hiding the spiralling disaster of its battery factory imperium3 New York from shareholders for months, after the Australian Securities & Investments Commission sued the company on Tuesday.

Court documents handed to Magnis and its chair Frank Poullas on Monday reveal a litany of allegations from ASIC, which alleges the company knew the gigafacotry iM3NY was churning out dud cells and required millions more in investments to turn a corner.

Despite this, Magnis repeatedly made assurances to shareholders iM3NY had entered production in August 2022, with plans to boost production to 15,000 cells a day.

Instead, ASIC alleges Magnis could only squeeze 46 cells from the factory in January 2023 with production “primarily a manual, high cost, and slow process” and the automated production equipment was “unable to deliver”.

On January 3 Magnis told shareholders there had been a “successful” production program at iM3NY, “first revenues” soon expected.

Magnis promised shareholders the factory would spit out cash, with revenue targets of $80m in 2022, climbing to $360m in 2023 and $530.4m in 2024.

All the while Magnis continued to pour cash into the factory without revealing to shareholders the repeated assurances of production had fallen flat.

ASIC’s court filings allege despite repeated assurances iM3NY had reached “fully automated production” or “commercial product” Magnis knew the factory was churning out duds, with 95 per cent of cells unusable.

However, ASIC alleges despite the production failures Magnis’ board “resolved that whilst there were issues at iM3NY, it was not at the point that required disclosure to the ASX unless it was determined by the chief executive upon his return from visiting the iM3NY Facility that the situation was “more dire”.

Magnis CEO David Taylor quit the company in June last year.

ASIC alleges by no later than April 23 last year the company knew the manufacturing process “was not under control, that iM3NY had made no saleable cells to that point, that cells that had been made to date were “95 per cent scrap”, and that there was no known root cause of iM3NY’s inability to produce safe, saleable cells”.

“Since January 2023, Magnis directors raised for discussion with one another, and discussed, concerns that iM3NY was weeks away from bankruptcy and had unsolved production problems, that Magnis had not been clear with its shareholders about these issues, and that if iM3NY’s financial or operating situation was made public Magnis’ share price may crash,” ASIC claims.

Magnis has dumped $95m into the factory, alongside a further $US100m ($147m) loan, while allegedly hiding from shareholders warnings from iM3NY that the factory was nearly insolvent.

Magnis CEO David Taylor (right) resigned from his role as CEO at Magnis Energy Technologies last year. Picture: Supplied

ASIC names both Magnis and Mr Poullas, seeking to have the Federal Court make civil findings about the two which could see the 13-year chairman banned as a director.

The continued challenges at Magnis and iM3NY have seen the company rapidly run down its financial reserves, with lenders on the factory also stepping in to seize control of the operation late last year after running up millions in unpaid invoices and interest costs.

However, Magnis failed to reveal to investors it had lost control of the factory for days after they stepped in.

Magnis shares have tumbled from their peak of almost 73c in late 2021, to just 4c in December year, when the company was suspended from trade by the ASX.

ASIC alleges Magnis’ failure to make continuous disclosures and its misleading and deceptive conduct saw investors trade “on a materially uninformed or misinformed basis”.

“Magnis’ shareholders, including its retail investors, were exposed to the potential to suffer harm and/or be materially prejudiced by reason of Magnis’ actions,” ASIC claimed.

“ASIC alleges Magnis shareholders and the market more broadly remain materially uninformed about the true situation at the iM3NY Facility.”

The case against Magnis comes after ASIC revealed it was investigating the company in August last year, after earlier dropping a separate probe into Mr Poullas over concerns in share trades in the company.

ASIC chair Joe Longo alleged Magnis and Mr Poullas failed to comply with continuous disclosure obligations and director’s duties.

“In this case, we allege that Magnis and its executive chairman, Frank Poullas, failed on both counts, leaving the market materially uninformed and investors unaware that Magnis’s battery factory was in a parlous state, both financially and operationally,” he said.

“ASIC is committed to ensuring that Australia’s markets remain among the cleanest and most transparent in the world.”

In a market update on Tuesday, Magnis said it would review ASIC’s allegations “in conjunction with its legal advisers and will keep the market informed as required”.

The court filing comes as Magnis revealed it had just $28,000 left in its bank accounts, after earlier tapping lenders and shareholders for multiple financial lifelines.

Magnis said it had just 0.04 quarters of funding left, leaving the company with enough cash to last just under four days.

This is in addition to a $4.6m loan falling due on Tuesday, which has burned a hole in the company’s accounts due to an interest bill which surged from 5 per cent a month to 5.5 per cent in the last quarter.

Magnis told investors it was looking to raise funds, noting directors “are in final stage discussions regarding additional capital from the debt markets and believe that this will be completed imminently”.

“The details of an investment will be advised to the market in accordance with the company’s continuous disclosure obligations,” Magnis said.

Originally published as ASIC takes aim at Magnis, chair Frank Poullas over failure to reveal battery failures