BOSTON (Reuters) – Kentucky’s state securities regulator is investigating plant-based plastics maker Danimer Scientific after a financial researcher told the office that the newly public company failed to make certain material disclosures.
The Division of Securities of the Kentucky Department of Financial Institutions wrote in a letter dated May 17, and seen by Reuters, that it “has opened a formal inquiry into the matter.”
The letter was addressed to activist short-seller Ben Axler, whose firm Spruce Point Capital conducts forensic financial research.
Axler told Reuters he had approached the Kentucky regulator in early May to say Danimer failed to tell investors that it is subject to environmental regulations, which can be costly. Axler also told the regulator that Danimer, which has a production facility in Kentucky, revised numbers on air pollutants by 100% in certain months and again failed to alert investors.
The Kentucky regulator did not respond to phone calls or emails from Reuters seeking comment.
Danimer, which is headquartered in Georgia, did not immediately respond to a request for comment about the probe or the allegations.
Spruce Point has a short position in Danimer and is betting the company’s shares will fall.
The company, which listed its stock in December after merging with a so-called blank-check company, quickly became a market darling as investors increasingly focus on environmental, social and governance issues, worrying about, for example, how plastic bottles are clogging rivers and oceans.
Danimer’s stock price surged 145% to a high of $64.29 in its first weeks of trading, as investors hoped its Nodax PHA product, the first PHA polymer verified to fully degrade in the ocean, would become a huge seller.
Hedge fund manager David Einhorn’s Greenlight Capital listed Danimer as a top position in its last quarterly letter and index fund giants Vanguard Group and BlackRock Inc (NYSE:BLK). are also big holders.
But over the last three months Danimer’s stock price has tumbled 46% as doubts surfaced about Nodax and the company’s financial data.
Spruce Point said in a report published in April, that “there are several corporate governance red flags with Danimer’s management team that should worry ESG investors.” In that report it said the stock should trade closer to $8.75 a share. It closed at $20.27 on Thursday.