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Class action lawsuit filed against Bunker One affiliated Vertex Energy

13 Mar 2023

Bernstein Liebhard LLP on Thursday (8 March) announced that a securities class action lawsuit has been filed on behalf of investors who purchased or acquired the securities of Vertex Energy, Inc. (Vertex) between April 1, 2022 and August 8, 2022.

Vertex is a significant production partner of marine fuels firm Bunker One after they entered a 10-year marine fuel Joint Supply and Marketing Agreement in 2020 and Bunker One is an investor in Vertex Energy.

The lawsuit was filed in the United States District Court for the Southern District of Alabama and alleges violations of the Securities Exchange Act of 1934.

Prior to the start of the Class Period, Vertex’s primary business involved the collection and processing of used motor oil. In early 2021, Vertex announced that it had reached an agreement to acquire an oil refinery located in Mobile, Alabama from Shell Oil. The refinery was viewed as a “transformative” acquisition for Vertex, expected to significantly increase the Company’s projected annual revenues, from USD 115 million in fiscal year 2021 to a projected USD 4 billion in fiscal year 2023. A key component of the acquisition was Vertex’s plan to convert a portion of the refinery’s 91,000 barrel-per-day output to renewable diesel fuel, which was expected to generate higher profits than the refinery’s conventional gasoline and diesel fuel outputs. The acquisition of the Mobile refinery acquisition was expected to close in early 2022.

To successfully operate the Mobile refinery, Vertex, like other oil refiners, would be required to procure raw crude oil from suppliers, process it into finished products such as gasoline, diesel, and jet fuel, and sell the finished products to distributors who would then sell the products to end users. The difference between the prices at which Vertex acquired crude oil inventory and the prices at which it sold the finished products inventory is known in the refining industry as the “crack spread.” Crack spreads, which fluctuate over time based on domestic and global oil prices, are widely viewed by analysts and investors as the key component of potential profits for oil refiners like Vertex.

Plaintiff alleges that, throughout April 1, 2022 and August 8, 2022, Defendants failed to disclose, among other things, that prior to the acquisition of the Mobile refinery, Defendants had entered into inventory and crack spread hedging derivatives that significantly capped the profit margins on 50% of the Mobile refinery’s expected output over the period April 1, 2022 to September 30, 2022, affecting over 6.5 million barrels of refined fuel output.

On August 9, 2022, before the market opened, Vertex filed with the SEC a Form 8-K that included its second quarter 2022 earnings release and held an earnings conference call for analysts and investors (Q2 earnings call). In the earnings release, and on the call, Vertex disclosed massive losses incurred at the Mobile refinery during the second quarter of 2022. Vertex announced a net loss for the Company of USD 63.8 million. Vertex also announced that adjusted EBITDA for the Mobile refinery, even after adjusting for certain incurred losses, was only USD 63.6 million, compared to the guidance given just three months prior for EBITDA of USD 120-USD 130 million in the second quarter, a total shortfall of 50%. Vertex also withdrew its financial guidance for the remainder of fiscal year 2022 and fiscal year 2023.

On this news, Vertex’s stock price fell USD 6.18 per share, or 44%, to close at USD 7.80 per share on August 9, 2022.

Related: Vertex and Bunker One enter into 10-year Marine Fuel agreement
Related: Bunker One enters strategic alliance with Vertex Energy to strengthen U.S. position


Photo credit: Essow on Pexels
Published: 13 March, 2023

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