Stricken lottery sales platform Lottery.com is facing a proposed federal class-action lawsuit from disgruntled shareholders who claim they were misled by the company’s top brass.
The lawsuit comes, somewhat inevitably, just weeks after an internal third-party investigation uncovered “instances of noncompliance with state and federal laws concerning the state in which tickets are procured as well as order fulfillment.”
The report also suggested there were issues related to Lottery.com’s internal accounting controls. Then, in a July 15 filing to the Securities and Exchange Commission (SEC), the Texas-based company admitted it had overstated its available unrestricted cash balance by approximately $30 million. It added that it had improperly recognized revenue in the same amount in the prior fiscal year.
On July 29, the board announced Lottery.com did not have sufficient financial resources to fund its operations and pay its obligations, including its payroll, over the next 12 months. This created “substantial doubt” about its ability to continue as a going concern and it would begin laying off workers with immediate effect, read the statement. It acknowledged that it could be forced to wind down its operations or pursue liquidation of its assets.
Having already taking a battering from the accounting scandal, this news caused Lottery.com’s shares to fall off a cliff, losing 64% of their value in a single trading day.
Lottery.com went public in November 2021, following a merger with special purpose acquisition company (SPAC) Trident Acquisitions Corp. The lawsuit alleges that from that date onwards, members of the board engaged in “a plan, scheme, conspiracy and course of conduct” that involved “knowingly or recklessly engag[ing] in … a fraud and deceit.”
They did this by issuing bullish quarterly and annual reports SEC filings, press releases and other statements designed to “artificially inflate and maintain the market price of Lottery.com securities; and cause Plaintiff and other members of the Class to purchase or otherwise acquire Lottery.com securities and options at artificially inflated prices.”
In May, Lottery.com co-founder and CEO Anthony DiMatteo enthused about the company’s Q1 2022 earnings.
“We believe that the combination of our multi-pronged growth strategy, focus on profitability, and strong balance sheet all position us for future success,” he said.
Matteo resigned in July.
On Tuesday, the NASDAQ said the company could be delisted from the stock exchange for the late filing of its most recent quarterly financial report.
The lawsuit asks for damages sustained by lead plaintiff Preston Million and other members of the Class, prejudgment and post-judgment interest, legal fees, and other costs, as well as any further relief deemed just and proper by the courts.
The suit names Lottery.com, DiMatteo, co-founder and CRO Matthew Clemson, and former co-founder president, treasurer and CFO Ryan Dickinson, who was fired mid-June.
It demands a jury trial.
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