By Svea Herbst-Bayliss
BOSTON (Reuters) -Kentucky's state securities regulator is investigating plant-based plastics maker Danimer Scientific after a financial researcher told the office that the newly public company failed to make certain material disclosures.
The Division of Securities of the Kentucky Department of Financial Institutions told Reuters on Friday that it has "launched an inquiry into the investor complaint related to Danimer Scientific."
The regulator earlier this week sent a letter to activist short-seller Ben Axler, whose firm Spruce Point Capital conducts forensic financial research, saying it "has opened a formal inquiry into the matter."
Axler told Reuters he had approached the Kentucky regulator in early May to say Danimer failed to tell investors that it is subject to environmental regulations, which can be costly. Axler also said he told the regulator that Danimer, which has a production facility in Kentucky, revised numbers on air pollutants by 100% in certain months and again failed to alert investors.
The Kentucky regulator said it will not comment further on the matter "until the review is complete."
Danimer, which is headquartered in Georgia, said it will cooperate with any inquiries from the regulator.
"Our company will not be distracted by these hapless attempts to undermine our contributions to solving the global plastic waste crisis. We stand by our disclosures and remain committed to educating and informing investors about our business," a Danimer spokesman said.
Spruce Point has a short position in Danimer, betting the company's shares will fall.
The company, which listed its stock in December after merging with a so-called blank-check company, quickly became a market darling as investors increasingly focus on environmental, social and governance issues, worrying about, for example, how plastic bottles are clogging rivers and oceans.
Danimer's share price surged 145% to a high of $64.29 in its first weeks of trading, as investors hoped its Nodax PHA product, the first PHA polymer verified to fully degrade in the ocean, would become a huge seller.
Hedge fund manager David Einhorn's Greenlight Capital listed Danimer as a top position in its last quarterly letter and index fund giants Vanguard Group and BlackRock Inc (NYSE:BLK) are also big holders.
But over the last three months Danimer's stock price has tumbled 46% as doubts surfaced about Nodax and the company's financial data.
Spruce Point said in a report published in April, that "there are several corporate governance red flags with Danimer's management team that should worry ESG investors." In that report it said the stock should trade closer to $8.75 a share.
It was trading up more than 11% at $22.53 on Friday.