MARBLEHEAD — The former owners and founders of Marblehead-based boat manufacturer Ribcraft USA have filed a civil complaint against three members of the company’s Board of Directors, claiming that they committed $120 million in fraud, and a breach of fiduciary duty.
The 15-page twice-amended complaint obtained through MassCourts states that plaintiffs John Hassett and James Bryant are taking action against Ribcraft USA, LLC Board of Directors Brian Gray, Welles Hatch, and Andrew Savage due to the plaintiffs’ “sale of their membership units in Ribcraft in the fall of 2019 for less than they were worth based on misrepresentations by defendants concerning the financial condition of the company.”
The complaint also includes a third claim that the company violated Section 10 of the federal Exchange Act, which prohibits “material misrepresentations and misleading omissions in connection with the purchase or sale of securities.”
Ribcraft was founded approximately 20 years ago by Bryant and Hassett, according to the complaint. The company manufactures rigid inflatable boats (RIBs) for military, law enforcement, and recreational use.
The complaint alleges that Ribcraft’s Board of Directors “misrepresented the terms and significance” of two large Navy contracts that totaled more than $120 million. The contracts involved the production of 11-meter and seven-meter RIBs.
According to the complaint, both Bryant and Hassett provided initial startup financing and also “personally guaranteed the company’s long-term debt and provided interest-free short-term loans” that would cover payroll, among other expenses.
The two then decided to bring in Gray to manage the company. Afterward, three other investors were brought on, and a five-person Board of Directors was established.
Gray’s affidavit directly contradicts many points listed in the complaint filed by Bryant and Hassett. In the document, Gray states that he founded the company in 2001 and that Bryant and Hassett were initial shareholders in Ribcraft, along with Gray, but claims that they never put any time into helping the company succeed.
“Beyond their capital investment, neither Hassett nor Bryant invested any time into developing or growing the company,” Gray stated in the affidavit. “They were passive investors that did not take part in the operations, strategy, or decision-making of the company.”
Gray and Stephen LaRose, one of Ribcraft’s attorneys, could not be reached for direct comment as of press time.
When reached for comment, Bryant said, “The facts of the case speak for themselves.”
The complaint filed by Bryant and Hassett states that the company grew steadily, but was “never profitable enough to pay dividends to its investors.” The complaint went on to say that after being instructed by the board to evaluate strategic options for the company, Gray instead presented an offer he obtained from a “reputed outside investor” in August 2017. This investor, according to the complaint, was offering to purchase some of Bryant’s and Hassett’s company shares for around the same value of their original investments when the company was founded.
In September 2017, Hatch, who according to the complaint was not on the board yet, told Bryant and Hassett on the new investor’s behalf that they would need to convert their “preferred ownership interest” into “common interest” in order for the deal to go through, forfeiting a balance of more than $1 million in the process.
According to the complaint, it was revealed that the “outside” investment was being funded by Gray’s father, Peter Gray.
“From all that appears, defendant Gray and his father, with assistance from Hatch, had secretly formed West Shore Ventures LLC to act as the straw for purposes of the investment,” the complaint reads. “Gray’s father, once out from behind the curtain, joined the board. But he lacked promised expertise.”
The defendants then made multiple attempts to purchase Bryant’s and Hassett’s remaining shares, according to the complaint, and hired an outside firm to determine the fair market price of Ribcraft units.
According to Gray, Hassett and Bryant “demanded” that the company purchase the rest of their remaining shares in Ribcraft in the fall of 2019. The affidavit states Ribcraft agreed in October 2019 and purchased the shares a month later in November 2019.
The complaint claims that the outside firm’s assessment of the value of Ribcraft was purposefully misrepresented. The firm, MFA Cornerstone Consulting LLC, projected that sales would fall from $6.7 million in 2019 to $4.5 million in 2020.
MFA concluded that Ribcraft was worth only $1.6 million and that the plaintiff’s units in the company were worth only 8 cents each.
In 2019, the plaintiffs rejected two offers from the defendants that valued their shares at 8 cents in January and 9 cents in March. One month later in April, it was documented that Ribcraft was awarded a nearly $45 million Navy contract to produce 11-meter RIBs — a contract the company had bid on a year prior unbeknownst to Bryant and Hassett, according to the complaint.
The complaint also claims that Ribcraft included misleading information relating to an even larger contract in their mid-year report. The report stated that the company’s 2014 contract for a finite amount of seven-meter RIBs was ending, and that a new contract was being pursued, but failed to include the size of the contract. The report also “provided a dreary outlook of the industry as a whole,” referencing negative sales forecasts and competitors’ struggles.
The defendants “never revealed to plaintiffs” the size of the 11-meter contract in 2019 nor the new seven-meter contract, which was worth more than $79 million, according to the complaint.
Gray claims in the affidavit that both Hassett and Bryant knew of the company’s plans to pursue an 11-meter RIBs contract with the Navy “as early as March, 2017.” Gray also states that there had not been a bid on a seven-meter contract prior to the purchase of their remaining shares.
“At the time that Hassett’s and Bryant’s shares were purchased, Ribcraft had not even bid on the seven-meter contract,” Gray states, claiming that Ribcraft was not able to bid on the contract until eight months after the remaining shares were sold.
Bryant’s and Hassett’s attorney filed a complaint for discovery with Essex Superior Court on Oct. 20, 2022 alleging the defendants had significantly downplayed the size of the contracts.
“Defendants instead represented the Navy contracts to be insignificant and immaterial and unlikely to increase the value of the company, and continued to negotiate based on the MFA Valuation premise which by then was invalid,” the complaint states.
In a press release on Ribcraft’s website dated Aug. 16, 2022, the company announced that it had begun the production phase in it’s five-year contract with the Navy to produce the seven-meter RIBs, also revealing the price of the contract.
“Under the multi-year contract, Ribcraft will build up to 278 of the seven-meter rigid inflatable boats worth approximately $80 million,” the press release states. “This is purported to be the largest single contract based on number of boats ever awarded by the United States Navy.”
With the complaint filed, the plaintiffs and defendants now await a possible trial by jury that has yet to be scheduled.
