A further director also resigned because of a “breakdown” in the board’s ability to cooperate, while founder Tony DiMatteo also left the board – soon after resigning as chief executive as part of the terms of the investment.
The lottery broker had faced extensive difficulties this year, since discovering “instances of non-compliance with state and federal laws concerning the state in which tickets are procured”.
Following this review, the Lottery.com board “terminated the employment” of its president, treasurer and chief financial officer Ryan Dickinson in July. Examining its accounts as a new CFO took over, the business then discovered it had “overstated” its cash balance by $30m.
Following this announcement, the business revealed it may not be able to continue as a going concern, as it was already unable to pay all of the wages it owed employees. In addition, chief executive Tony DiMatteo stepped down from his post.
With the business’ future seemingly in jeopardy, it has now announced funding from a business known as Woodford Eurasia, a subsidiary of investment firm United International Holdings Netherlands BV.
When contacted regarding the Lottery.com investment and the reasons for injecting the funds, a United representative – who also confirmed the relationship between United and Woodford – opted not to comment.
Woodford Eurasia will provide a $2.5m loan to Lottery.com within five days, with the possibility for an additional $50m. Rather than interest, Woodford Eurasia will receive warrants to purchase up to 15% of Lottery.com at a 25% discount from market price.
However, as part of the terms of the loan, Woodford Eurasia demanded that four of the five remaining members of the Lottery.com board resign, with the investment business appointing two new members in their place.
Four board members did indeed resign, but in their resignation letters two members slammed the company and suggested that they felt that appropriate steps had not been taken to vet Woodford before the investment.
In separate resignation letters, board members Lisa Borders and William C Thompson Jr criticised Lottery.com’s actions regarding the “potentially inappropriate activity” that had created problems for the company.
“Over the last few months, I have worked diligently on behalf of the shareholders and uncovered potentially inappropriate activity, as referenced in our 8-K filings,” they both said. “However, my efforts to perform as a fiduciary in evaluating opportunities for the company’s return to normal operation have been consistently obstructed by opaque and contrived processes, singular relationships, and a dysfunctional board environment.”
The pair both then went on to say that the company had not taken appropriate steps to examine the background of one recent investor. They did not name this investor, though Lottery.com had not revealed any other major investments besides the funding from Woodford.
“Questions to determine the viability and credibility of potential investors were met with disdain and were never fully answered,” they both said. “Inquiries raised relative to lender suitability and source of funds were dismissed.
“And most recently, a request for additional time to review and understand research on the ‘red flags’ from the compliance team about a potential investor was met with threats to hold an official board meeting without all board members present. In this instance, a meeting was held that violated the requirements of the corporate bylaws.
“I did not attend this meeting. The need and desire to perform appropriately rigorous due diligence on behalf of the shareholders was thwarted.”
Board member Steven M Cohen also resigned. While he did not directly question the funding proposal, he said that he felt a need to step down after a meeting related to the deal was held without two directors – likely referring to Boarders and Thompson – present. This, he said, “may well have been in violation of our corporate bylaws”.
“This is only the most recent example of a breakdown in the ability of members of this board to function as a group and only the most recent example of certain directors being unwilling to deliberate and confer in an open and reasoned manner,” Cohen added. “Such a breakdown and such an unwillingness to seek consensus in a thoughtful manner does not serve the interests of the shareholders.”
In addition to these three members, DiMatteo also stepped down from the board, fulfilling the condition required for the loan.