On December 20, 2023, Solar Integrated Roofing Corp. (SIRC) initiated a major legal action by filing a $1.1 billion lawsuit against former CEO David M. Massey in the United States District Court for the Southern District of California, case number 3:23-cv-02323-MMA-AHG. The lawsuit alleges a range of serious misconduct including fraud, securities violations, and breach of fiduciary duty. This article aims to concisely summarize the key points of the lawsuit and provides direct links to the 41 exhibits that have been filed as part of the legal proceedings.

Skeletal Outline of the Complaint

For those not well-versed in legal language, understanding the structure of the Complaint (also commonly referred to as the lawsuit) is crucial. This section demystifies the legal jargon and outlines each part of the document, providing a foundation for the detailed analysis that follows. Experienced legal professionals or those familiar with legal pleadings may choose to skip ahead to the next section entitled, “Examining the Evidence: Massey’s Misconduct and Its Impact on SIRC.”

Introduction: This segment provides a concise overview of the lawsuit, laying out the foundational claims against former CEO David M. Massey and co-conspirator Laura Mettias. It sets the stage for the allegations of misconduct that form the basis of SIRC’s case.

Parties: The Complaint clearly identifies the plaintiff, SIRC, and the defendants, David M. Massey (former CEO) and Laura Mettias, disclosing their states of residency. This straightforward section establishes the identities and legal standing of all parties involved.

Jurisdiction and Venue: Detailing the legal grounds for the case’s location, this section confirms the United States District Court for the Southern District of California as the appropriate legal forum. It underscores the court’s authority and relevance to the specifics of the lawsuit.

Factual Allegations: Central to investor interests, this section is the core of the lawsuit. It outlines the factual basis of SIRC’s claims against Massey and Mettias, covering a spectrum from fraud to breach of fiduciary duty. Linking allegations to 42 filed exhibits, it offers tangible evidence supporting the claims. This comprehensive account is pivotal, especially for shareholders, as it details how the defendants’ actions damaged the company.

Counts (I-IX): Each “Count” in the Complaint matches factual allegations to specific legal theories or claims. In simpler terms, this section translates the facts into legal language, connecting the defendants’ actions to the framework of legal accountability that SIRC is pursuing.

Demand for Jury Trial: Concluding the Complaint, SIRC asserts its constitutional right to a jury trial, indicating a preference for a judgment reviewed and decided by a group of peers. This choice underscores the company’s confidence in the strength of its evidence and its desire for a transparent, community-based judgment process.

It is worth mentioning for the detail-oriented readers a subtlety about evidence presentation in legal documents. Not every fact in the Complaint is accompanied by a cited exhibit. This is standard practice; where facts are not directly supported by documents, they are often established through live testimony in court. This approach is common in legal proceedings and doesn’t diminish the validity of the facts that will be presented during the trial.

Examining the Evidence: Massey’s Misconduct and Its Impact on SIRC

Now, we delve into the detailed specifics of David Massey’s tenure as CEO of SIRC. For shareholders, the following revelations may present a mix of emotions – from disbelief to frustration, perhaps tinged with a sense of the absurd. However, it’s important to approach these details with a clear perspective, recognizing the gravity and potential impact of these allegations on the company. Be prepared; some of the information may be unsettling, reflecting a challenging period in SIRC’s history.

Lying to the Board | Securities Fraud: Massey, despite receiving adequate compensation as CEO of SIRC, a microcap company, in 2020 to the tune of $92,077.60 (Exhibit 1), misrepresented his compensation status to SIRC’s Board of Directors. He claimed he had never been compensated, which led to the issuance of 5 million Preferred B shares to him (Exhibit 2). Each of these shares was convertible into 10 common shares. Given that the stock was trading at $0.03 per share at the time, this act of securities fraud effectively amounted to a theft of $1.5 million from the company.

More Theft: Once again, the Board was deceived by Massey, resulting in the issuance of more Class B shares under the pretext of “compensation.” On June 17, 2020, a decision was made to issue an additional 1.5 million Class B shares to Massey, purportedly as compensation (Exhibit 3). This grant allowed Massey to obtain another 15 million common shares, valued at roughly $750,000.00, based on the then-current stock price of about $0.05 per share. This act, constituting a substantial financial gain under false pretenses, amounted to further theft from the company. The basis of these transactions – claiming compensation that was already paid – violated the Securities and Exchange Act of 1934, specifically 15 U.S.C. § 78j(b). Moreover, credible indications suggest that Massey likely did not accurately report these transactions and his actual compensation on his tax returns, potentially constituting attempts to defraud the United States government in violation of 18 U.S.C. § 371.

And the Buyback Scheme: Massey’s maneuvers extended to an attempt to persuade the Board to repurchase his Preferred B shares for a staggering $10,000,000.00. This ambitious proposal, however, was ultimately declined by the Board (Exhibit 4). Yet, persisting in his claim of non-payment – despite evidence to the contrary – Massey was partially successful. As revealed in Exhibit 4, he managed to convince the Board to buy back 1 million of these shares, this time for $2,000,000.00. This transaction, carried out under the guise of unpaid compensation, further demonstrates the pattern of deceptive practices employed by Massey during his tenure.

Off-The-Books Transfers | “SIRC, LLC”: Massey established “SIRC, LLC,” a shell company for off-the-books transfers, on June 7, 2021, potentially to facilitate the conversion of his Preferred B shares into cash. He chose Indiana for registration to maintain a low profile (Exhibit 5).

“SIRC, LLC” Continued: The Articles of Incorporation for “SIRC, LLC” name James Smyth, Esq. as the registered agent, linked to “customstructuredsettlements.com.” Mr. Smyth is also the managing partner of Custom Structured Settlements LLC, which helps in “strategically defer[ring] capital gains when allowed by law” (Exhibit 6; Exhibit 7).

Clearly a Shell Company for No Good Purpose: The dissolution of SIRC, LLC on December 5, 2023, following SIRC’s announcement of legal action against Massey, suggests its role in facilitating Massey’s personal enrichment (Exhibit 8).

Selling Restricted Shares to “SIRC, LLC”: Massey first sold 1 million Preferred B shares to Pablo Diaz on February 7, 2022. He then transferred the remaining 4.5 million restricted shares to “SIRC, LLC” on May 25, 2022, aiming for clandestine profit without having to report the transactions since, on paper, “SIRC, LLC” was a third party (Exhibit 9).

Restrictions | FBI Freeze: Eventually, Massey learned that he could not easily sell shares that were still restricted. So, under “SIRC, LLC,” he transferred 37 million common shares (equivalent to 3.7 million Preferred B shares post-conversion) back to himself on October 5, 2022 (Exhibit 10). On November 3, 2022, he pushed to have all restrictions removed from these shares, aiming to facilitate their transfer back to “SIRC, LLC” and subsequent off-the-books sale (Exhibit 11). However, the broker correctly rejected the removal attempt due to a microcap policy (Exhibit 12). Undaunted, Massey tried again on January 20, 2023, this time for a partial removal of restrictions on 6,258,986 shares (Exhibit 13). Although successful, this action constituted a clear securities violation. Consequently, on August 25, 2023, the FBI intervened and seized these assets (Exhibit 14).

Reckless Mismanagement:

Arbiter. Lending $4.2 million to receive a subsequent loan of $42 million is inherently questionable, yet this was Massey’s plan with Arbiter Capital LLC (“Arbiter USA”), a Delaware LLC. On October 5, 2021, under Massey’s direction, SIRC loaned $4.2 million to Arbiter USA at 3.5% interest (Exhibit 15). This was to finance Arbiter USA’s non-operational subsidiary, Arbiter Bank International (St. Lucia) Limited (“Arbiter St. Lucia”), purportedly enabling a $42 million loan to SIRC (Exhibit 16; Exhibit 17). However, SIRC has yet to receive any return from this transaction. The glaring inconsistency in Massey’s plan was failing to question the rationale behind Arbiter needing a $4.2 million loan from SIRC when it was supposedly positioned to lend $42 million.

Balance Sheet Errors. The lack of oversight from Massey over the accounting department led to significant discrepancies in the company’s balance sheet. In 2021, these errors resulted in discrepancies amounting to at least $84,000.00, underscoring a concerning lack of financial diligence (Exhibit 18).

Toxic Debts. Contrary to his fiduciary duty to act in the best interests of SIRC, Massey repeatedly engaged the company in financially hazardous obligations. A striking example of this is a loan secured on September 9, 2020, burdening SIRC with an exorbitant annual percentage rate of 88.25% (Exhibit 19), an action indicative of gross financial mismanagement.

Lack of Due Diligence & Regulatory Noncompliance. Massey’s tenure at SIRC was marked by a consistent disregard for due diligence, leading to transactions that were not only risky but also in violation of regulatory standards. A prominent example is SIRC’s dealings with Jefferson Street Capital LLC (JSC), a firm that claimed to be a securities trader. Massey failed to verify JSC’s registration status as a dealer, thus breaching the Securities and Exchange Act of 1934, when he entered SIRC into a precarious Securities Purchase Agreement on March 19, 2019 (Exhibit 20). This lack of oversight resulted in a considerable financial setback for SIRC. JSC executed a conversion at a significantly lower rate of $0.05 per share when SIRC’s stock was trading well above $0.50 around June 2021, as detailed in Exhibit 20 (paragraph 1.2) and further supported by Exhibit 21. Massey himself admitted this failure as a result of his “ignorance” (Exhibit 21).

Lack of Due Diligence in Hiring & Acquisitions. Massey’s legendary lack of due diligence was not confined to securities. With exacting efficiency, he made sure to entrench SIRC in costly deals when acquiring businesses and hiring insiders. For instance, he purchased a 60% interest in SunUp Solar LLC (“SunUp”) from its owner, Elijah Chaffino, for $200,000 plus 200,000 shares of common stock on June 30, 2021, despite SunUp having “no tangible assets” and being operational for less than a year since October 26, 2020 (Exhibit 22 at ¶ 1.02(b); Exhibit 23 at p. 34). Furthermore, Massey’s decision to appoint Mr. Chaffino to manage SIRC’s Milholland subsidiary resulted in a conflict of interest, given Chaffino’s ownership in Standard Eco LLC, a subcontractor for SIRC. This arrangement led to Chaffino’s resignation on August 22, 2022, followed by a lawsuit against SIRC on November 22, 2023. This entire transaction not only incurred the initial purchase cost but also resulted in $2.9 million in operational losses from SunUp, as well as additional legal fees, significantly impacting SIRC’s financial standing.

More Regulatory Noncompliance. Massey’s disregard for SEC rules extended into his personal dealings, particularly evident in a late 2021 off-the-books transaction with Granite Ridge Capital Partners (“Granite”). Lacking any record at SIRC, it’s presumed this was a private deal between Massey and Granite. However, like the Jefferson Street Capital case, Granite wasn’t a registered dealer, making this transaction a violation of securities laws. Complicating matters, Massey used SIRC’s resources for legal defense when issues arose, incurring personal legal expenses on the company (Exhibit 24).

Impressing Girlfriend at the Expense of Investors. Mr. Massey, ever creative, had found other ways to contribute to SIRC’s decline. Notably, he re-hired his girlfriend’s daughter, Christina Johnson, despite her previous employment and subsequent lawsuit against SIRC. Her ineffectiveness was highlighted in a June 29, 2018 email advising Massey on how to “spin” company mishaps (Exhibit 25). Beyond prompting questionable actions from Massey, Johnson’s tenure was largely unproductive, filled with complaints and accusations. After her initial lawsuit and subsequent rehiring, Johnson mercifully quit after just three months. Astonishingly, Massey then rewarded her with a three-year severance package. This decision, aimed more at impressing his girlfriend than serving SIRC’s best interests, represented a clear breach of Massey’s fiduciary duty.

Impressing Girlfriend, Continued. In January 2022, Massey contemplated using SIRC funds to acquire Heartland Constructors LLC, a defunct Texas company owned by Bob Zarbo (Exhibit 26). An email dated August 27, 2022, revealed the purchase was primarily intended to benefit Massey’s girlfriend, “Marlena’s Comp plan,” by appointing her as President and minority owner (Exhibit 27). Although this purchase never materialized, it exemplifies Massey’s tendency to prioritize personal interests over SIRC’s well-being, potentially leading to further financial detriment for the company.

More Clueless Projections. Adding to the Arbiter debacle, Massey’s February 2023 prediction that Arbiter St. Lucia would be funded within a month proves to be another example of his imprudent management (Exhibit 28). As of December 2023, two years post SIRC’s $4.2 million loan to Arbiter USA, Arbiter St. Lucia remains without even a SWIFT code, highlighting a continuous pattern of reckless executive decisions.

Using the SIRC Treasury for Personal Expenditures. Massey routinely diverted SIRC funds for his own expenses without board approval. Among numerous instances, notable examples include using company funds to cover his personal legal fees (Exhibit 24), payments related to his personal real estate investments (Exhibit 29), and costs associated with a trailer he owned (Exhibit 30). These actions, just a fraction of many, not only constitute fraud and breach of fiduciary duty but have also resulted in significant financial harm to SIRC.

Gambling with SIRC Funds. A particularly striking misuse of funds occurred on February 7, 2022, when Massey traded 1 million of his Preferred B shares with Pablo Diaz for just $1,000.00 (Exhibit 31). This transaction, seemingly personal but related to Diaz’s insider status at SIRC, undervalued the shares significantly, given their conversion potential to 10 million common shares and the stock’s trading price above $0.30 at the time. This deal, not representing true value, effectively gambled SIRC’s assets, with Massey using the proceeds for a sports bet (Exhibit 32).

Illegal Communications with (and Lies to) Investors: Massey regularly misled investors with false insider information, unbeknownst to SIRC management. He once told a retail investor, on March 16, 2023, that the share price would reach $0.20 within the next 30 days, a claim which proved to be unfounded as the share price later plummeted (Exhibit 33). He also used SIRC funds for a hotel booking on November 9, 2020, to meet another investor and provide misleading information (Exhibit 34).

Sam Aker: Massey also provided insider information to the popular investment journalist Sam Aker, under the pretense of official communications. On February 13, 2023, Massey falsely claimed to have secured funding for SIRC and misrepresented the reasons behind other executives’ departures, disregarding Mr. Aker’s specific request for only public information (Exhibit 35). Upholding his professional ethics, Mr. Aker unequivocally instructed Massey not to provide any insider information (Exhibit 35). He even forwarded SIRC’s short selling report to Mr. Aker before public release, again, after being advised against such insider communications (Exhibit 36).

Massey Told to Stop: Once discovered, SIRC insiders directed Massey to cease these unauthorized activities. On December 15, 2022, CEO George Holmes explicitly instructed him to refrain from responding to shareholder emails, a directive Massey repeatedly ignored (Exhibit 37).

Completely Rogue: Further evidence of Massey’s rogue behavior includes his admissions to an investor on March 19, 2023, and November 11, 2022, about being advised against shareholder communications, yet continuing to do so (Exhibit 38). He even forwarded an internal SIRC email to Mr. Aker on April 2, 2023, despite clear instructions to stop (Exhibit 39). Massey’s actions not only breached fiduciary duty and violated securities laws but also inflicted significant damage to SIRC’s goodwill and finances.

PPP Loan Scandal: Massey colluded with Ms. Mettias to defraud the U.S. government by manipulating Small Business Administration loans under the Paycheck Protection Program (PPP). Opting for Mettias as a consultant, despite her exorbitant fee of over $500,000 (based on 10% of loan proceeds) compared to the standard $50,000, they conspired to use portions of these loans for personal expenses (Exhibit 40). Further, they inflated SIRC’s employee numbers on PPP applications, claiming over 500 employees despite actual numbers being significantly lower, to obtain more funds (Exhibit 41).

In the End, He Tried to Run: Following his resignation, Massey continued his attempts to undermine SIRC. He pressured the new CEO, Brad Rinehart, to declare bankruptcy, likely to evade his own debts and obligations from his time at SIRC. Mr. Rinehart, however, stood firm against these suggestions, demonstrating his integrity in the face of such pressure (Exhibit 42).

Damages: SIRC suffered substantial damages due to the alleged actions of Massey and other defendants, including securities violations, wire fraud, breach of fiduciary duty, fraud, negligence, conversion, unjust enrichment, RICO violations, and conspiracy to defraud the U.S. government. These damages encompass funds misappropriated by Massey and Mettias, Massey’s personal expenditures from SIRC funds, losses due to his reckless management, and the associated legal costs. Additionally, SIRC’s reputation among investors has been significantly damaged, evident in the over $100 million decrease in market capitalization. The egregious nature of these actions, characterized by deliberate and reckless disregard for SIRC’s wellbeing, justifies seeking punitive damages in the amount of 10 times the compensatory damages. Therefore, SIRC is pursuing a total jury verdict of $1.1 billion against Massey and Mettias, reflecting both compensatory and punitive damages.

Conclusion

The legal battle against Massey, Mettias, and other associated defendants reveals a deeply troubling narrative within Solar Integrated Roofing Corp. (SIRC). The allegations, ranging from reckless mismanagement to outright fraud, paint a picture of a company severely impacted by the actions of a few individuals. The lawsuit lays bare the extent to which SIRC suffered — financially, reputationally, and operationally.

While the monetary damages sought in the lawsuit are substantial, they reflect more than just financial loss. They symbolize the effort to rectify the wrongs done to SIRC, its shareholders, and its stakeholders. This case stands as a stark reminder of the importance of ethical leadership and the consequences when it is lacking.

As SIRC moves forward, this lawsuit marks a pivotal moment in its history — an opportunity for renewal and rebuilding. It’s a chance to restore trust with investors, reinforce corporate governance, and redefine the company’s path forward. The outcome of this legal action will undoubtedly shape SIRC’s future, setting a precedent for accountability and integrity in its operations.

In the end, this lawsuit is not just about seeking reparation; it’s about reaffirming the company’s commitment to its shareholders and its core values. It represents a step towards a more transparent, responsible, and sustainable future for SIRC.

Image Credit: SIRC.com