Meta Faces Potential Class Action Lawsuit

Since last we spoke of Dartmouth-based Meta Materials, it has become the target of both a scathing short-seller’s report and a potential class action lawsuit.

Both developments were reported in the local mainstream press — by SaltWire’s Newfoundland-based Barbara Dean-Simmons and the CBC’s Paul Withers — which I note because neither outlet reported a, to my mind, more important Meta Materials story when it broke last fall, namely, that it had been served with a subpoena by the Enforcement Division of the US Securities and Exchange Commission (SEC), as per the company’s 10-Q filing for the quarter ended September 30:

In September 2021, the Company received a subpoena from the Securities and Exchange Commission, Division of Enforcement, in a matter captioned In the Matter of Torchlight Energy Resources, Inc. The subpoena requests that the Company produces certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. The Company is cooperating and intends to continue to cooperate with the SEC’s investigation. The Company can offer no assurances as to the outcome of this investigation or its potential effect, if any, on the Company or its results of operation.

Meta Materials founder and CEO George Palikaras tweeted subsequently that he believed the company was in “full compliance” with SEC regulations and there have been no new announcements regarding the SEC investigation since then, but on December 14, a Miami-based investment company called Kerrisdale Capital released the afore-mentioned scathing report about Meta Materials — whose stock it is shorting.

And on January 3, The Rosen Law Firm filed a class action lawsuit against Meta Materials in the United States District Court, Eastern District of New York, on behalf of one John B. Maltagliati and “all others similarly situated.” Since then, a number of other law firms have begun fishing for Torchlight/Meta shareholders who “purchased or otherwise acquired” the publicly traded securities of the company between 21 September 2020 and 14 December 2021.


The lawsuit claims Meta Materials violated Section 10(b) of the Securities Exchange Act of 1934 under which it is unlawful to:

Make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made not misleading…

In documenting Meta’s alleged “materially false and misleading statements” and omissions, the lawsuit draws heavily on the Kerrisdale report (which we’ll get into in more detail below), stating that the defendants (named as Meta Materials, Torchlight, Palikaras, Kenneth Rice (Meta Materials CFO and EVP), Greg McCabe (Torchlight’s board chair) and John Brda (Torchlight’s president, CEO and secretary):

…made false and/or misleading statement and/or failed to disclose that:

(1) the Business Combination would result in an SEC investigation and subpoena in the matter captioned In the Matter of Torchlight Energy Resources, Inc.;

(2) the Company has materially overstated its business connections and dealings;

(3) the Company has materially overstated its ability to produce and commercialize its products;

(4) the Company has materially overstated its products’ novelty and capabilities;

(5) the Company’s products did not have the potential to be disruptive because, among other things, the Company priced its products too high; and

(6) as a result, Defendants’ public statements were materially false and/or misleading at all relevant times.

Mel Rusinak, manager of corporate affairs for Meta Materials, told the CBC:

These types of lawsuits are unfortunately a common occurrence for companies with stock listed on public exchanges in the United States.

With the lawsuit having just been filed, it will be months before a lead plaintiff is appointed to represent the class and before we have an opportunity to respond.

We believe the lawsuit is without merit and intend to vigorously defend against it.


Class Actions

I was curious as to how common an occurrence securities class action lawsuits are for “companies with stock listed on public exchanges in the United States” and my googling led me to this 2021 paper, “Recent Trends In Securities Class Action Litigation,” by Janeen McIntosh and Svetlana Starykh.

I learned that between 2010 and 2015, on average, 223 securities class action suits per year were filed in the US. By 2019, the number had climbed to over 400, before dropping back to 326 in 2020. The authors note that:

As a result of the decline in the number of new filings and the growth in the number of listed companies in 2020, the ratio of new filings to listed companies declined to 5.7%, the lowest ratio in the last five years.

The paper also notes that 2020 saw 320 cases resolved, the overwhelming majority of them — 247 — in favor of the defendant.

I also learned — while perusing the Securities Class Action Clearinghouse, a database maintained by the Stanford Law School, that Nortel Networks ranks sixth among the Top Ten largest securities class action settlements of all time, at $2.9 billion, which isn’t germane to this discussion but is interesting.

Most settlements are not that large and it’s the lawyers, rather than the plaintiffs, who tend to benefit most from class action lawsuits. Here’s a warning from the North Carolina Consumers Council:

Class action lawsuits have been criticized as giving lawyers huge paydays while leaving little money for the people who were harmed, who typically get worthless coupons or vouchers for a future purchase from the company or a tiny settlement check. While class members do sometimes get checks for $50 to $100, many class action settlement checks are in the single digits or even so small that the postage on the envelope is more than the settlement.


Short seller

This story is difficult to tell because everywhere you turn you find unreliable narrators — it’s either people with a vested interested in driving the company’s share price up or people with a vested interest in driving it down.

Of course, people are permitted to express opinions about a stock. What they’re not allowed to do is share false or misleading information about it, as this article from law firm DLA Piper, “Defamation and Regulatory Claims Against Short Sellers in Canada” explains:

Short-sellers are often accused of “short and distort” schemes. A short and distort scheme involves a short-seller taking a short position in a publicly traded company and then engaging in a false representation smear campaign in order to drive down the company’s share price. The short and distort scheme is essentially the flip-side of a pump and-dump scheme, whereby a shareholder promotes a company to increase its share price and then sells its shares once the stock has become over-valued. In both cases, the underlying wrongful behavior relates to feeding misinformation to the public market in a manner that distorts the share price to the commentator’s advantage. In both situations, unassuming shareholders are at risk of financial loss. In the case of short and distort schemes, share values are driven down by inaccurate information and during pump and dumps potential shareholders are enticed to buy and existing shareholders are enticed to hold on to shares at inflated values that are not sustainable.

Concerns about “short and distort” schemes have prompted the US Department of Justice (DOJ) to launch what Bloomberg calls “an expansive criminal investigation into short selling by hedge funds and research firms,” an investigation that, as Forbes reported at the end of 2021, short sellers seem to be shrugging it off:

Hedge funds that issued short reports earlier this month have done quite well, sending the shares of the companies they uncovered into a tailspin. Ivan Cosovic of Breakout Point offers some highlights of December’s haul for short-sellers in an email.

“Eleven stocks were added to short sellers’ naughty list in December,” he said in an email. “The most active was Kerrisdale Capital with three new short calls and corresponding average shares decline of 12.5%…

Meta Materials was one of those three new shorts (the others were HubSpot and Astra).

I read the Kerrisdale report and, I have to say, it makes some pretty convincing arguments about Meta’s shortcomings — so convincing that I was curious to see how Palikaras would respond to them, but he has simply ignored them.


According to DLA Piper, though, these accusations should probably be addressed:

In terms of public relations or investor relations, Canadian companies will typically work with a public relations firm or their existing investment relations firm to develop a message to answer short-seller criticisms, to establish a channel of communications to ensure consistency of message, and to deliver the company message to key stakeholder targets through a variety of channels. The company will seek to correct any inaccuracies contained in the short report, and will focus on delivering its core investment strategy messages.

Moreover, in cases where “misfeasance is alleged,” DLA Piper says, “the Board obviously has a responsibility to investigate the facts and take action based on what is learned.” (I am not a lawyer and cannot say categorically whether what Kerrisdale is alleging rises to the level of misfeasance — I didn’t even know what “misfeasance” meant until I googled it — but I suspect it does.)



I have attached the Kerrisdale report above, but to give you a taste of its contents, I’d like to look at a product the short seller singled out for particular criticism: Meta’s metaAIR laser glare protection (LGP) glasses.


The glasses began life as “thin films” that  “would be applied to aircraft windows to protect against laser strikes that could affect pilot vision,” and were the brainchild of Lamda Guard, the company, founded by Palikaras in 2011, that later became Metamaterials (now Meta Materials).

Lamda/Meta received $500,000 from ACOA in 2012 to develop its films and in 2014, it entered Airbus Corporate Innovation’s Start-Up 2 Partner program during which it says it “tested and tailored metaAIR for potential application on to its aircraft.”

In 2015, ACOA gave Meta a $3 million interest-free loan to “verify nanostructured laser filter technologies.”

Early in 2017, Entrevestor reported that Airbus and Meta were:

…moving into commercial production of metaAIR, and plan[ned] to manufacture the laser-filtering screens in the Halifax area…

Later that same year, Meta announced a memorandum of understanding with Satair, Airbus’ parts and equipment distribution subsidiary, which was to “lead to an exclusive multi-million dollar global distribution agreement to bring MTI’s laser protection product metaAIR to the civil aviation market.” The product, at this point, was still being described as a film that could be affixed to the inside of an aircraft cockpit.

In 2018, ACOA gave Meta an interest-free, $3 million loan to build a production facility and Palikaras announced a modification to the deal with Satair — the two would produce “goggles that can protect pilots and others from laser attacks.” Again, the development was reported by Entrevestor which stated:

MTI, which makes special materials that can alter the properties of light, is already working on a project with Airbus to produce linings for cockpit windows that can filter out lasers. Now, to get to markets more quickly, it will work with Satair to produce a product that individuals can wear to achieve the same ends.

Satair CEO Bart Reijnen bragged that, along with Airbus, they had “brought a startup up company to production maturity,” and Meta said it had hired a new chief production officer to “help ramp up manufacturing of the product.” Riejnen promised that initial metaAIR products would appear in the first quarter of 2019 — and as Kerrisdale notes, the glasses did appear in a Satair brochure:


But, Kerrisdale writes:

The problem is that the glasses have been a complete commercial failure. While Satair paid Meta $1 million (C$1.3 million) in the 2018 agreement to become the exclusive distributor of the glasses through 2026, and even put in a C$2 million purchase order before that distribution agreement was even signed, Meta’s financial filings indicate that it has never been able to actually produce the glasses at even modest scale. A total of 50 units were sold to Satair in 2019, while another 2 were sold to an undisclosed national air force. We estimate that Meta also sold about 30 units through its website in the first quarter of this year (maybe it was the fact that they put the glasses on sale for $1000, a large price cut from the normal $1800 MSRP). That’s it.

In 2020, Meta became a publicly traded company in Canada by means of a reverse takeover of a struggling Canadian mining company, Continental Precious Metals (CPM). Kerrisdale says the CPM listing document from March 2020 states that Meta “completed the construction of its metaAIR eyewear production facility in Q1 2019.”

But in July 2021, Palikaras told Entrevestor that its ACOA-funded production facility — described very clearly as “its first commercial production facility” — was still under construction and was not expected to be completed until “the first half of 2022.”

metaAIR glasses on sale

Kerrisdale, not one to pull its punches, argued that it wasn’t just Meta’s inability to produce at scale that was the problem — it was the quality of the glasses themselves:

It’s notable that the metaAIR product is not even very good. The underlying holographic technology, which involves using lasers to alter the optical properties of transparent light-sensitive polymers that comprise a thin film, is difficult and expensive to implement. It’s also complete overkill for a niche product with a lot of competition from cheaper and lower-tech alternatives that happen to do a much better job at protecting pilots’ eyes from potential laser strikes. Dye-based lenses, such as those manufactured by Gentex and Revision, offer better durability, protection from multiple angles, and protection from a range of dangerous wavelengths, all for 15% of the price for which the metaAIR frames sell. Non-holographic thin-film options, such as those from Iridian and PerriQuest effectively offer the same protection as metaAIR lenses, also for 10-15% of the price. The metaAIR glasses are expensive, lack peripheral vision protection, are extremely vulnerable to scratching, and were only developed to protect from green-wavelength lasers (whereas the competitors mentioned here also offer protection from blue and red wavelengths). Even if Meta could figure out how to make them, they probably wouldn’t sell anyway.

I would think that if Meta Materials had answers to these pretty damning criticisms, it would want to share them now, rather than waiting for a class action lawsuit to be certified and make its way to court. Particularly since this is just the tip of the iceberg — Kerrisdale levels several other equally explosive allegations, including that glucoWise, Meta’s non-invasive glucose sensing system, is a “fake product” Meta has promoted, partly, “by misrepresenting the results of rudimentary biology experiments.”

But the most recent interview I found with Palikaras and CFO Ken Rice didn’t cover any of this. (And that’s a topic for a separate story. I’ve gone on enough for now.)


Harry Potter cloak invisibiltityP.S. I found this December 2021 article by Ben Pilkington helpful in understanding metamaterials in general. I also appreciated the contrast between this line from Pilkington:

Also in the theoretical realm, some researchers have demonstrated that metamaterials could be used to create a science-fiction-like “cloaking” or “invisibility” device, although no practical demonstration has been recorded.

And this line from Meta Materials CFO Ken Rice (which you’ll hear him uttering in the first minutes of this softball interview given just a month earlier, in November 2021):

If you’ve heard of the cloak of invisibility in Harry Potter? We can replicate that.