An EquipmentShare investor is suing the Columbia-based company in a proposed class action suit that alleges the company failed to fully disclose financial relationships involving businesses tied to its co-founders.
Plaintiff Jupiter Parra alleges those omissions allowed EquipmentShare securities to trade at artificially-inflated prices and claims investors lost money when the information became public.
The complaint links those alleged losses to a June 24 report by Umibōzu Research — a financial research organization founded this year.
EquipmentShare is a Columbia-based company that opened in 2015 to provide equipment and software for the construction industry to rent, buy or be serviced. The company went public in January, offering 30.5 million shares of Class A stock at $24.50 each and receiving approximately $706 million in net proceeds.
According to the complaint, EquipmentShare’s stock fell 6.6% the day the report was published to close at $22.30 and another 11.7% the following day to close at $19.69.
EquipmentShare shares traded as low as $16.06 — a more than 34.5% decline per share from the initial public offering price — by the time the lawsuit was filed July 23 in U.S. District Court for the Southern District of New York.
The complaint names EquipmentShare’s co-founders, other executives and directors, and the financial firms that underwrote its initial public offering.
Before going public, EquipmentShare disclosed millions of dollars in transactions with companies owned or controlled by co-founders Jabbok and William Schlacks. It also stated it expected to “terminate or substantially reduce” a number of those related-party transactions.
The lawsuit alleges, however, that EquipmentShare did not terminate or substantially reduce a number of the founder-related transactions identified in its disclosure and was participating in additional related-party transactions that had not been disclosed.
The complaint argues those omissions made the company’s financial statements and other public disclosures materially misleading.
EquipmentShare said in an Aug. 13 filing with the Securities and Exchange Commission that it believes the claims are “without merit” and intends to defend against the lawsuit vigorously. The company did not respond to repeated requests for comment.
A related-party transaction involves a company that is closely connected to person or business with a material interest in the company. The Securities and Exchange Commission rules generally require disclosure of transactions exceeding $120,000 in which the company participates and a qualifying related person has a direct or indirect material interest.
The lawsuit extensively cites the Umibōzu Research report, titled “EquipmentShare: Relentless Self-Dealing, a Tech Veneer, and the Missouri ‘Cult’ That Started It All." The report alleged undisclosed related-party transactions benefiting entities affiliated with EquipmentShare’s founders by at least $77 million. Umibōzu did not respond to requests for comment.
It should be noted that Umibōzu disclosed that it or its affiliates held a short position in EquipmentShare when the report was published, meaning it could benefit if the securities declined in value.
Several primary allegations concern EquipmentShare’s OWN Program.
Through the OWN Program, participants buy equipment from EquipmentShare and lease it back to the company, which rents it to customers and shares the resulting rental revenue with the equipment owners.
The report alleges businesses tied to the Schlacks brothers collected fees by helping arrange those equipment purchases. It identifies two businesses with different roles: Bevel Financial, which helps finance purchases, and Armada Fleet Management, which buys equipment from EquipmentShare for resale to OWN participants.
According to the report quoted in the complaint, Bevel was the preferred financing partner of EZ Equipment Zone, a business that aggregated equipment investments for participants in the OWN Program.
The report claims corporate filings and Uniform Commercial Code records list the Schlacks as directors or officers of Bevel even though the company is not listed as a related-party.
Based on assumptions about financing volume and fees, the report cited in the lawsuit estimated Bevel collected at least $24 million in loan-origination fees associated with EZ’s equipment assets.
Armada acts as an intermediary between EquipmentShare and individual OWN participants, according to the report quoted in the complaint. It purchases equipment in bulk and resells portions to participants, collecting a fee for arranging the transactions.
The report estimated Armada generated at least $18 million in such fees and cited a former EquipmentShare insider who described it as wholly owned by the Schlacks brothers.
The allegations extend beyond OWN. The report quoted in the complaint describes a network of 130 entities affiliated with the Schlacks brothers, including 91 that shared addresses with The Premiere Group, which the report identifies as a business managing the family’s investments.
The report estimated Premiere received at least $35 million in net proceeds from buying and reselling properties associated with EquipmentShare locations. That estimate was based on 20 property sales for which pricing information was available.
Together, the report’s estimates attributed to Bevel, Armada and Premiere account for the $77 million cited in the complaint. That figure represents estimated benefits to businesses the report linked to the Schlacks brothers, not the amount of investor damages sought in the lawsuit.
Bevel Financial, Armada Fleet Management, EZ Equipment Zone and The Premiere Group did not respond to requests for comment.
The proposed class includes investors who suffered damages after purchasing Class A shares traceable to EquipmentShare’s IPO or acquiring EquipmentShare securities between Jan. 23 and June 23.
The complaint seeks class-action status, compensatory damages and litigation costs. It does not specify an amount of damages.
