Woodford Eurasia has voiced grave concerns regarding erroneous statements recently disseminated by Lottery.com Inc., which misleadingly suggest a resolution to their ongoing legal tussle. Contrary to these pronouncements, Woodford underscores that the conflict is anything but settled, highlighting Lottery.com’s breach of their loan agreement terms in December.
In December of the previous year, Woodford and Lottery entered into a financial arrangement, with Woodford extending a convertible loan exceeding $2 million to Lottery, alongside an option for a further $50 million facility. The terms of this agreement permit Woodford to convert the loan into shares of Lottery at a predetermined rate and acquire the domain Sports.com, owned by Lottery, for $6 million. This contractual agreement has been made public through filing with the SEC. The document can be accessed here: (Page 51, Exhibit 10.1)
https://ir.lottery.com/static-files/0ea308ba-a43f-4a2b-8584-b5cb1a83696a#page51
A debenture, securing the loan against Lottery’s entire asset portfolio, affords Woodford the right to instigate the liquidation of Lottery’s assets through a receiver in the event of a default.
By mid-2023, Woodford had funnelled precisely $2,159,838.15 into Lottery pursuant to the loan agreement, a fact acknowledged by Lottery in Clause 4.2 of the Amended and Restated Loan Agreement. This infusion was instrumental in rectifying the company’s financial statements to align with the regulatory requirements of Nasdaq and the SEC, and in formulating a dynamic business development plan. This culminated in a Nasdaq hearing panel sanctioning Lottery’s continued trading on the exchange, thereby concluding a period of turmoil initiated by allegations of revenue exaggeration against the company’s founding members Antony DiMatteo, Matt Clemenson, Ryan Dickinson, and the erstwhile management, which also drew scrutiny from the SEC and DOJ.
Lottery’s Breaches of the Loan Agreement
In the wake of the Nasdaq verdict favouring Lottery, the company’s Board of Directors notified Woodford in July 2023 about replacing Woodford with an alternative creditor, UCIL, purportedly owned by Lottery’s so-called independent directors, Matthew McGahan and Barney Battles. This decision is deemed a blatant violation of SEC and Nasdaq regulations. The replication of Woodford’s loan agreement terms by the new agreement with UCIL also constitutes a clear infringement of Woodford’s contractual rights.
Subsequent breaches by Lottery included the ousting of transitional CEO and corporate restructuring specialist Mark Gustavson upon his revelation of misconduct by board members. To cover up these improprieties, Matthew McGahan assumed multiple executive roles, and Barney Battles retained his position as the head of the Audit Committee. A rudimentary vetting of actor Tamer Hassan and the rest of the board members unveils a pre-existing nexus and business collaborations among them, undermining the board’s independence and contravening Nasdaq’s Majority Independent Board regulation.
Following these events, Lottery witnessed a precipitous decline in market valuation, with its share price nosediving from $3.3 in late August to $1.3 by early November. Despite Woodford exercising its contractual right to convert a segment of its loan into shares, the board disregarded this and proceeded to allocate substantial share volumes to directors and their consultants without transparently disclosing the identities, quantities, or terms involved.
Proxy Vote and the Erosion of Shareholder Equity
Lottery’s announcement in November of a proxy vote for issuing shares and warrants up to $200 million precipitated a control shift and significantly diluted the equity of all existing shareholders.
Woodford and its subsidiary entities initiated legal proceedings in Delaware in a bid to block the share issuance following an improperly executed proxy vote. Despite some shareholders being deprived of their voting rights, the court allowed the proxy vote to proceed. Woodford posits that the judiciary’s decision was constrained by time, given the last-minute filing necessitated by the board’s expedited proxy vote process.
Following Lottery’s default in December on its loan repayment obligations, Woodford opted to forego further legal action in Delaware, focusing instead on a more direct approach to debt recovery. However, Woodford and its subsidiary entities reserve the right to revive the Delaware lawsuit should the situation evolve. Woodford remains convinced of the procedural flaws in the proxy vote execution.
Woodford’s Response to Lottery’s Non-compliance
Woodford endeavoured to settle the dispute with Lottery amicably on several occasions, including a disregarded proposal for a $10 million investment. Moreover, Woodford’s attempt to exercise its contractual right to acquire Sports.Com, as delineated in clause 12 of the loan agreement, was also overlooked. Despite this, the notice was lawfully issued, and Woodford’s contractual entitlement to Sports.Com stands enforceable through legal channels if required.
Lottery’s failure to meet its repayment obligations in December led Woodford to issue a default notice, activating the enforceability of the security held against Lottery’s assets. Woodford is currently seeking legal advice on the most effective strategy for security enforcement.
Directors’ Self-Allocation of Shares
The disclosure in February 2024 of the beneficiaries of shares allocated post-UCIL announcement revealed that Lottery’s board members had granted themselves a significant portion of the company’s shares, severely diluting the holdings of existing shareholders.
The revelation that 6.1% of shares were allocated to Mr. Andrey Ryjenko, who now goes by his wife’s surname, Nikitin, and serves as a board consultant, is particularly troubling. Ryjenko’s past role at the European Bank for Reconstruction and Development and his subsequent fraud conviction in 2017, leading to a three-year prison sentence, raises serious concerns about his suitability for involvement with a company listed on Nasdaq.
The February 2024 disclosures confirmed that the board members of Lottery.com had self-allocated over 40% of the company’s shares, resulting in significant dilution for current shareholders. Woodford accuses these actions of constituting an act of corporate raiding.
In a January 5, 2024, court hearing in Tampa, Florida, Greg Potts, the incumbent COO, testified to receiving shares as part of a “retention bonus” and for “outstanding salary.”
Currently, Lottery lacks legitimate employees on its payroll and has no active business operations or revenue streams, apart from TinBu, LLC, a company acquired under false pretenses by Lottery.com, which remains unpaid as per the agreement. The founders of TinBu are now seeking $20 million in damages from Lottery for fraud.
“We have tried many times to mediate or settle this dispute in an amicable way. We are shareholders of this company and are committed to supporting it all the way through. It is unfortunate that Lottery management keeps making false accusations, issuing incorrect news releases and announcements, abusing legal processes, and manipulating, so we now have no choice but to enforce our security, which will undoubtedly cause disruption of business and further loss of value for Lottery. It is unfortunate that the actions of individuals in their own interest can lead to such damage to a corporation, and we are surprised how a publicly traded company can lack independent oversight and compliance.”
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