Indiana investment fund accuses company executives of fraud

"Despite our best efforts to weather the current capital climate, the financial challenges we have faced in recent months have proven insurmountable. The final blow was delivered two days ago from our senior secured lender, which exercised its legal right to take control of our bank account."

RealEats CEO Dan Wise, in an email sent to investors on March 1

A suit filed in state Supreme Court last week accuses two top executives of RealEats with committing fraud when they were seeking millions of dollars in new investments late last year, just months before the company abruptly ceased operations.

CEO Dan Wise and CFO Rebecca Holderread are named as defendants in the suit, filed by the Indiana-based investment fund Real Bridge.

RealEats was trying to raise millions of dollars last fall, telling investors they needed bridge funding to help fund expansion that was necessary to keep up with the company's explosive growth. The lawsuit alleges that RealEats was actually in financial distress and on the brink of closure, and that Wise and Holderread used the new investment dollars to repay outstanding loans and reduce their own personal liability.

"Defendants knew, and failed to disclose to Plaintiff, that they had individually guaranteed the company's debt to its senior secured lender and that the lender had 'sweep access' to the company's bank account," the complaint alleges. "In addition ... Defendants concealed their plan to use Plaintiff's invested funds to reduce their personal liability and exposure to that lender."

Court papers include a list of 18 investors who combined to inject more than $2.5 million into RealEats between Sept. 29, 2022 and the end of the year. Real Bridge invested $450,000 on Dec. 20, 2022, just ten weeks before Wise announced the company's abrupt closure on March 1.

RealEats produced and shipped fully cooked, ready-to-heat vacuum-sealed meals to consumers in much of the United States. It competed in the meal-kit delivery industry, which surged in popularity during the early days of the pandemic. The company received more than $12 million in investments, grants and loans from New York state and local governments.

Court papers include a slide deck that Wise shared with potential investors in early December offering a rosy financial forecast. It projected revenue growth of roughly 70% annually through 2025, rising from $22.7 million in 2022 to $128.5 million by 2025. Despite losing $10 million in 2022, the projections suggested the company was on a path to becoming profitable by 2024.

The deck also included several slides that suggested the possibility of RealEats being purchased by a larger company. It suggested dozens of potential acquirers, including Walmart, Amazon, and Instacart. Four slides were devoted to explaining the potential timeline for a sale, which it said might close as soon as February 2023. and exploring the price a potential acquisition might yield.

Court papers also include a January email from CEO Dan Wise in which he told investors the company had engaged an outside firm "to explore a strategic sale" after the company received "five inbound M&A [merger and acquisition] opportunities in late 2022." It outlined how much the investors would profit if the company did close a sale, projecting it might go for as much as $60 million dollars.

"If the company were to sell for as little as $18,000,000, the return would be approximately 2x," Wise wrote in the January email message to investors.

Court papers include an email that Wise sent to investors on March 1, informing them that RealEats was closing operations. That email offers some clues to the sequence of events that led to the company's abrupt closure.

"Despite our best efforts to weather the current capital climate, the financial challenges we have faced in recent months have proven insurmountable," Wise wrote. "The final blow was delivered two days ago from our senior secured lender, which exercised its legal right to take control of our bank account."

The implication is that RealEats was facing increased pressure to repay that secured lender, who was not identified in court papers. That pressure was apparently so intense that raising roughly $3 million in short-term funding was not sufficient to satisfy the lender, which opted to take what funds it could recover without regard to whether that would leave the company in a position to continue to operate.

Court papers allege that Wise told potential investors that senior debt was valued at roughly $6 million.

The lawsuit accuses Wise and Holderread of fraud, breach of fiduciary duty, and unjust enrichment.

RealEats is already facing a proposed class action suit from its former employees, who say the company owes them 60 days of pay and benefits under state and federal law for closing without advanced warning.

Lawmakers have called for investigations into what happened to the company, which had been held up as a shining example of Finger Lakes Forward, the region's comprehensive strategy to revitalize communities and grow the economy.

NY Assemblyman Jeff Gallahan, whose district includes the town of Geneva, has asked the Attorney General's office and the Department of Labor to investigate the closure without notice. Geneva Town Supervisor Mark Venuti also called for answers about why RealEats closed so abruptly.

Contact reporter Sean Lahman at [email protected]. Follow him on Twitter @seanlahman.

RealEats CEO Dan Wise, in an email sent to investors on March 1