Magnis director raised risk reports over iM3NY, years before financial disaster

Magnis’ former head of risk tried to blow the whistle on the firm’s relationship with its battery gigafactory iM3NY years before being seized by lenders amid near-insolvency.

iM3NY CEO Chaitanya Sharma, chair Shailesh Upreti and former Magnis CEO David Taylor.

Senior figures at ASX-listed battery and graphite player Magnis Energy Technologies warned the company over its governance of its North American “gigafactory”, taking aim at chairman Frank Poullas’s public spruiking of the opportunities as it chased investors for cash.

In a letter seen by The Australian, Magnis former director Troy Grant wrote to former executive director James Dack warning of significant risks regarding the battery factory Imperium3 New York and the firm’s partnership with technology firm Charge CCCV, outlining concerns over rights, entitlements and oversights of the companies, which were consuming more and more cash with little to show for it.

In the note later shared with Magnis’s board, Mr Grant outlined his concerns over “our partner relationships, rights and potential risk” as well as “a general lack of board understanding and information sharing … on the details of that partnership and recent historical funding arrangements”.

The letter came as Magnis was seeking to rapidly ramp up the construction at iM3NY, which was to be built at the vacant manufacturing site of US tech giant IBM in the upstate New York town of Endicott.

Magnis ploughed more than $99.5m into iM3NY, placing two directors on the board, in addition to a $US100m loan taken out against the manufacturing project with private lender Atlas Credit Partners, spruiking the investment to shareholders with Mr Poullas even saying it could be worth up to $4bn.

Atlas Credit Partners now controls iM3NY after the company defaulted on the $US100m loan.

Magnis’ iM3NY plant built at the vacant manufacturing site of US tech giant IBM.

The emergence of the private letter shared with members of Magnis’s board in February 2021 comes as the company is facing action by the Australian Securities & Investments Commission in the Federal Court, amid claims it and Mr Poullas repeatedly misled investors for years.

ASIC alleges Mr Poullas and members of the board conspired to withhold critical information from investors about the disastrous situation at iM3NY, which was unable to manufacture usable batteries while also draining the ASX-listed firm’s accounts dry.

Magnis is now teetering on the edge of insolvency, joining the ASX’s long-term suspended entities club on Friday after being suspended from trade in December last year.

The energy and graphite company told shareholders it had $90,000 in cash as at June 30, when reporting its quarterly earnings in August, while dealing with a $4.5m loan charged at 54 per cent interest a year and a further $704,000 in “unsecured” loans from shareholders.

Magnis has also been unable to file its financial accounts, saying in September the full-year accounts could not be signed off due to ­“delays in closing a liquidity transaction” affecting the audit process.

“The company will submit the financial statements as soon as practicable,” Magnis told investors. It has still not filed the ­accounts.

This comes as iM3NY moved to slash almost all its staff amid near bankruptcy last week.

Almost 70 staff were sacked, leaving just a skeleton staff at the Endicott site, once touted as the saviour for the New York state rustbelt town.

In his letter of February 2, 2021, Mr Grant said he and other directors were “being severely compromised by a collective desperation to raise funds to get the NY Endicott project into production”, directly warning the board that cash was being handed over to iM3NY and C4V without clarity on what it was being used on.

Magnis burned through almost $88m during the 2021 and 2022 financial years, racking up almost $23m in expenditure on “administration” while shovelling cash into iM3NY and loans. Mr Grant also wrote he had concerns regarding Mr Poullas’s “recent public commentary re our capital raising ­potential in the next four weeks”.

Former Magnis executive director James Dack and chairman Frank Poullas. Picture: Liam Driver

“The funding effort is also being conducted in a silo without adequate communication to the board and excessive communications to the market that are far far premature, a rush to the media release habit has been formed by the chairman,” he said.

Just days later Magnis announced it had raised $34m from “local and overseas institutional and sophisticated investors” to “fast-track production at the iM3NY”.

Mr Grant warned that Magnis was raising cash from investors without a “sound business case”, adding it was instead a “back of the envelope approach which is neither appropriate, or sustainable”.

He said it was “amateurish and compromised the board in making sound financial decisions compromising our fiduciary responsibilities under the Corporations Act”.

Mr Grant said extracting information on iM3NY from Mr Poullas resulted in “generic and vanilla” responses, adding: “It feels as though we are a funding vehicle for the NY operation and nowhere a true partner”.

He also took aim at cash payments being handed by Magnis to iM3NY, including a transaction of half a million dollars to fund the acquisition of battery manufacturing machinery without any consultation or notice.

In emails seen by The Australian, Mr Poullas directed Magnis chief financial officer Jürgen Behrens to transfer $US500,000 to iM3NY.

“Hi Jurgs, can you please organise today for $US500,000 to be transferred into the iM3NY account,” Mr Poullas said.

“All done from my end,” Mr Behrens responded.

Magnis Energy Technologies chief financial officer Jürgen Behrens.

It was only 14 days later that Mr Behrens asked Mr Poullas “what was purchased” or why the cash was transferred. “I don’t really have any information on whether all the $US500k was spent or not,” he wrote.

Mr Poullas wrote back: “All reasonable questions, we will ­address all those questions on Monday”.

In his risk report, Mr Grant said he was “met with sharp resistance” when seeking to raise issues with governance and operating practices at Magnis.

Magnis previously told the ASX it had “put arrangements in place … so as to enable the company to keep the market informed of material matters occurring at the battery factory”.

But Magnis has repeatedly warned shareholders it had been provided allegedly incorrect information by iM3NY.

When the risk matters were raised with Magnis’s board by Mr Grant in February 2021, Mr Poullas ended the discussion before logging off, sources with direct knowledge of the meeting have told The Australian.

Days later Mr Grant, who had only joined Magnis’s board in June 2020, was gone after key shareholders threatened to remove him.

Mr Dack resigned from Magnis’s board in May.

Mr Poullas and Magnis are now facing court claims over the firm’s handling of iM3NY and what it told investors.

Magnis director Giles Gunesekera, left, with (US) managing director Hoshi Daruwalla, middle, and chair Frank Poullas, right. Picture: John Feder

But in defence papers, Mr Poullas refuses to even admit the firm, at times, appointed four directors to the board of the battery factory, only noting that iM3NY ran at a loss.

Magnis is yet to file its defence.

But Mr Poullas said ASIC’s claims that he was aware of critical market information relating to iM3NY was “embarrassing and liable to be struck out”.

The Magnis chair, who has run the company for 11 years, admits he published updates to the market that failed to disclose millions in cash contributions made to a struggling iM3NY.

“In pleading to the whole of the claim, Mr Poullas otherwise relies on his right to claim the privilege against self-incrimination and exposure to penalties,” he said.

Mr Poullas did not respond to request for comment.

Originally published as Magnis director raised risk reports over iM3NY, years before financial disaster