Shareholders Seek $50 Million Lawsuit Against Former Execs Over Merger
Translated & summarized from Calcalist by baba
Shareholders Walter Team and Israel Keller are seeking court approval to file a 182 million shekel derivative lawsuit against former executives of Luzon Credit and Finance and Tria P2P. The suit alleges that a flawed valuation of Tria, based on incorrect financial statements, led to a damaging merger in 2022. The company warned that correcting these financial errors could erase its equity entirely. The court previously dismissed a representative lawsuit, directing the matter to a derivative claim.
The story in 5 lines · by baba
- Shareholders seek court approval for a 182 million shekel derivative lawsuit over a 2022 merger.
- The lawsuit targets former executives of Luzon Credit and Finance and Tria P2P.
- Plaintiffs allege the merger was based on incorrect financial statements and flawed valuations.
- The company warned that correcting revenue recognition errors could erase its equity.
- A previous representative lawsuit was dismissed, with a derivative claim deemed the proper legal path.
Two shareholders of the public company Luzon Credit and Finance (formerly Tria) are asking the Tel Aviv District Court's Economic Department to allow them to file a derivative lawsuit against former controlling shareholder Amos Luzon and his group, directors who approved the deal, former controlling shareholders of the fintech company Tria P2P (including Eyal Elhiani, now the company's CEO), and the valuation firm C-Value. The lawsuit seeks 182 million shekels (approximately $50 million) and stems from the 2022 merger between Luzon and Tria.
This move follows a recent rejection by the Tel Aviv District Court of a request for a representative lawsuit against Luzon Credit and Finance. The plaintiffs had argued they were harmed by an incorrect valuation used in the merger. The court, however, ruled that the alleged damage was primarily to the company itself, making a derivative lawsuit the appropriate legal avenue.
The new derivative lawsuit application is being filed by the same attorney, Lior Lahav, on behalf of shareholders Walter Team and Israel Keller. They contend that the company issued shares for Tria's operations based on a flawed valuation derived from incorrect financial statements. They claim the deal would not have been completed had the errors been known.
In 2021, Luzon Real Estate and Finance, a public company with about 70 million shekels in cash and minimal operations, merged with Tria P2P, an operator of a peer-to-peer lending platform. Luzon allocated 433.7 million shares to Tria's shareholders, giving them about 73% of the merged entity, plus 332 million contingent rights for additional shares. A minimum valuation of 300 million shekels for Tria was a condition for the merger's completion, with initial valuations at the end of 2020 and 2021 placing Tria's worth at 397 million and 323 million shekels, respectively. The merger was approved by shareholders and finalized.
According to the lawsuit, the company discovered in May 2023 that Tria was charging advance fees from purchasing groups, even though entitlement to these fees was contingent on the actual provision of credit. In May 2024, the company announced it had erred in recognizing these revenues, warning that the correction could significantly impact its equity, potentially erasing it entirely. The plaintiffs state that the company restated its financial reports three times in less than five months. The final revised reports reduced Tria's 2021 revenues from 70.7 million shekels to 56.4 million shekels, and equity of 9.8 million shekels turned into a deficit of approximately 15.9 million shekels.