Woodford Eurasia has raised significant concerns regarding recent misleading communications issued by Lottery.com Inc., which inaccurately suggest that their ongoing legal contention has been settled. Contrary to these assertions, Woodford emphasises that the dispute remains unresolved, particularly in light of Lottery.com’s failure to meet the loan agreement terms in December.
In December 2022, Woodford formalised a loan agreement with Lottery, extending over $2 million as a convertible loan and offering the potential for an additional $50 million facility. The agreement permits Woodford to convert the loan into Lottery shares at a predetermined price anytime and includes an option to acquire Sports.com, a domain under Lottery’s ownership, for $6 million. This agreement was officially recorded with the SEC, making these details public knowledge. The loan document can be found here: (Page 51, Exhibit 10.1)
https://ir.lottery.com/static-files/0ea308ba-a43f-4a2b-8584-b5cb1a83696a#page51
The loan is secured against all of Lottery’s assets through a debenture, granting Woodford the right to appoint a receiver to oversee Lottery’s asset liquidation upon loan default.
By June 2023, Woodford had disbursed more than $2,159,838.15 to Lottery in accordance with the loan agreement, a fact Lottery acknowledged in Clause 4.2 of the Amended and Restated Loan Agreement. These funds were pivotal in restating the company’s financial reports to align with Nasdaq and SEC regulations and in devising a comprehensive business development strategy. Consequently, the Nasdaq hearing panel permitted Lottery to continue its trading activities on the exchange, marking the end of a tumultuous phase in Lottery’s journey, initiated by allegations against founders Antony DiMatteo, Matt Clemenson, Ryan Dickinson, and the former management team for revenue overstatements, leading to an SEC and DOJ inquiry.
Violation of the Loan Agreement by Lottery
In July 2023, following the favourable Nasdaq verdict, Lottery’s Board of Directors informed Woodford of their decision to replace Woodford with a different creditor, identified as UCIL, owned by purportedly independent directors of Lottery, Matthew McGahan and Barney Battles. This action is perceived as a grave disregard for SEC and Nasdaq regulations. The replication of the Woodford loan agreement’s terms in the new agreement with UCIL is seen as a direct violation of the original agreement with Woodford.
Lottery further breached the agreement with Woodford by dismissing interim CEO and corporate restructuring expert Mark Gustavson, following his exposure of dubious conduct by board members. In a bid to mask these improprieties, Matthew McGahan took on the roles of CEO, President, Secretary, and Chairman, with Barney Battles continuing as the Audit Committee’s Head. Background checks on actor Tamer Hassan and other board members reveal prior associations and business dealings that compromise the directors’ independence, thus violating the Nasdaq Majority Independent Board requirement.
The company witnessed a sharp decline in market capitalisation, with share prices plummeting from $3.3 in late August to $1.3 by early November. Woodford’s attempt to convert a portion of its loan into shares, as per the agreement, was disregarded by the board, which then proceeded to allocate substantial quantities of company shares to directors and their advisors without transparency regarding the recipients, quantities, or conditions.
Proxy Vote and the Dilution of Shareholders
In November, Lottery announced a proxy vote for the issuance of shares and warrants worth $200 million, leading to a change in control and significant dilution for all existing shareholders.
Woodford and its affiliates initiated legal action in Delaware in an effort to halt the share issuance, which resulted from an improperly conducted proxy vote. The judge allowed the proxy vote to proceed despite some shareholders lacking the means or opportunity to participate. Woodford believes the judge’s decision was constrained by time, as the legal challenge was filed just before the proxy vote, which the board expedited.
Following the default in loan repayment by Lottery in December, Woodford opted not to pursue the Delaware case further, focusing instead on enforcing the debt for quicker resolution. Nevertheless, Woodford and its affiliates maintain the right to revisit the Delaware lawsuit should circumstances change. Woodford is convinced the proxy vote was not executed properly.
Woodford’s Steps Following Lottery’s Default
Woodford made multiple attempts to resolve the dispute with Lottery amicably, including a proposal for a $10 million investment, which was ignored. Additionally, Woodford’s exercise of the option to purchase Sports.Com, as stipulated in clause 12 of the loan agreement, was also disregarded. Despite this, the notice was legally served, and Woodford retains enforceable contractual rights to Sports.Com, subject to legal reinforcement if necessary.
With Lottery’s failure to fulfil its repayment obligations in December, Woodford issued a default notice, enabling the enforcement of the security held against Lottery’s assets. Woodford is presently seeking legal counsel on the most effective method to enforce this security.
Directors’ Allocation of New Shares
In February 2024, the disclosure of recipients of shares allocated since the UCIL announcement revealed that Lottery board members, including McGahan and Battles, had granted themselves significant shareholdings, leading to substantial dilution for existing shareholders.
The disclosure also brought to light that 6.1% of shares were awarded to Mr. Andrey Ryjenko, now using his wife’s surname, Nikitin, and serving as a board consultant. Ryjenko’s previous senior role at the European Bank for Reconstruction and Development and his subsequent fraud conviction in 2017, resulting in a three-year prison term, raise questions about his suitability for involvement with a Nasdaq-listed company.
The February 2024 revelations confirmed that Lottery.com’s board members had allocated over 40% of the company’s shares to themselves, significantly diluting existing shareholders’ stakes. Woodford accuses these actions of constituting corporate raiding.
During a court hearing on January 5, 2024, in Tampa, Florida, Greg Potts, the current COO, testified to receiving company shares as a “retention bonus” and for “unpaid salary.”
As it stands, Lottery lacks legitimate staff on its payroll, with no ongoing business activities or revenue streams apart from TinBu, LLC, a company Lottery.com acquired under false pretences and has yet to pay for as agreed. The founders of TinBu are suing Lottery for $20 million 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.”