COLUMBUS — A high-tech indoor farming company in Appalachia promoted by JD Vance and financed in part by his venture capital firm is facing five lawsuits alleging it misled regulators and duped investors.
The shareholder suits against Morehead, Kentucky-based AppHarvest were filed between November 2021 and August 2022 by individual investors and a county retirement association. They allege the agricultural startup, where Vance also briefly sat on the board, repeatedly overstated its hiring and retention figures, including in U.S. Securities and Exchange Commission filings that investors use to evaluate companies. The suits also argue that investors were misled by press releases, analyst presentations and other public statements, including an interview the company's chief executive gave to The Associated Press touting a hiring spree.
Lawsuits of this kind were not unexpected as the newly public AppHarvest’s stock price plummeted. Since last year, equity incentive and stock purchase plans that Vance and other AppHarvest directors set up for the company’s mostly Appalachian workforce have lost hundreds of millions of dollars in value. Ohio teachers also lost more than $100,000 in retirement savings in AppHarvest’s decline before the State Teachers Retirement System of Ohio sold its 16,000 shares in June.
The suits could raise additional questions, though, about one of the central narratives of Vance’s U.S. Senate campaign: that he left behind a lucrative business career in San Francisco's tech world to focus on revitalizing Appalachia. Some of those efforts have already come under scrutiny. In a region that has been devastated by opioid addiction, for instance, he has faced criticism for launching an anti-drug charity that enlisted a doctor with ties to a major pharmaceutical company. Vance's campaign said he was unaware of those ties.
AppHarvest said the lawsuits are baseless. Vance, the Republican nominee for a critical U.S. Senate seat in Ohio, is not named in any of the suits. He left AppHarvest in April 2021 ahead of announcing his Senate campaign.
Vance’s campaign said his Cincinnati-based firm, Narya Capital, is itself an investor in AppHarvest and would suffer if the lawsuits' allegations were true. Spokesperson Taylor Van Kirk also emphasized that the actions were all filed after Vance left the board.
Colin Greenspon, a co-founder and managing partner of Narya, which lists Vance as on "a partial leave of absence,” said the firm continues to stand behind AppHarvest.
“We believe that AppHarvest is transforming America’s food supply in ways that will be impactful for generations to come,” he said in a statement.
Vance is running against Democratic U.S. Rep. Tim Ryan in one of the country’s most competitive Senate races. He has been touting AppHarvest since at least 2020, during the coronavirus pandemic.
The company grows tomatoes and other fruits and vegetables by sustainable agriculture methods on some of the world’s largest high-tech indoor farms, its website says. It has described its mission in SEC filings as empowering Appalachians, driving positive environmental change in the agriculture industry and improving the lives of its employees and the community.
“The last few months have taught us that our food system is a little more precarious than we realized,” Vance said in an August 2020 article in Greenhouse Grower. “AppHarvest will change that, and it will do so by building a sustainable, durable business in Appalachia, and investing in the people who call it home.”
The lawsuits, which allege misstatements going back to January 2021, contend the training AppHarvest provided to workers was “a joke,” that its workforce “suffered massive attrition, churn and COVID-19-related absences that negatively affected productivity” and that its first harvest last year was “ravaged by operational issues” and 50% was wasted. The litigation variously seeks undetermined monetary damages, governance reform and greater transparency at AppHarvest and, in two cases, jury trials.
AppHarvest attorneys have pushed back.
“This case is a textbook example of a plaintiff trying to spin a company’s reduction of its annual revenue guidance into a violation of the federal securities laws,” they told the U.S. District Court for the Southern District of New York in a filing last month. “Those laws and relevant pleading standards, however, prohibit pleading fraud-by-hindsight. And for good reason: markets are complex, and financial predictions made months or even a year into the future — particularly for a young, public company like AppHarvest — are always uncertain.”
Vance's level of involvement in the company while he was a director is unclear. He was among a roster of celebrities, including media mogul Martha Stewart, who got behind AppHarvest early on, and he spoke positively about the company on Fox Business News on Feb. 1, 2021, plugging its stock the day it went public in a business combination with Novus Capital, a special purpose acquisition company, or SPAC.
“What we saw as an opportunity here is if you could use technology, bring the point of production a little bit closer to the end consumer, you could actually pay people a decent wage, you could build a company that investors and consumers would be proud of, but you just have better produce,” he said.
Narya was an investor in that merger, reporting ownership of 2.9 million shares of AppHarvest stock at the time — a stake valued beforehand at $24.95 a share, or $73 million, and nine days later, when it had to be listed publicly, at $36 a share, or almost $106 million. AppHarvest stock closed at $1.57 a share on Thursday, with Narya saying it still holds all its shares.
Matt Sheridan, a senior finance lecturer at the Ohio State University's Fisher College of Business, said mergers involving SPACs — also known as shell or blank-check companies — are “a bad deal for investors” whose stock prices as a group have declined around 70%. They are an alternative to a traditional initial public offering, or IPO, for taking a company public, with fewer guardrails and less transparency.
A month after AppHarvest went public, the SEC issued a warning for investors not to invest in a SPAC “just because someone famous sponsors or invests in it or says it is a good investment.” The investment vehicles are now the subject of new regulatory scrutiny.
“Any time you have a collapse like that, that’s going to cause alarms,” Sheridan said. “And if there were misleading statements, fraudulent statements, then that can lead to legitimate lawsuits.”
AppHarvest spokesperson Darla Turner said the lawsuits have no merit and the company is thriving. It is poised to quadruple its farm network by year’s end, she said, as it adds locations specializing in salad greens and berries. Turner said AppHarvest is living-wage certified and provides a robust benefits program to employees.
Vance resigned from the AppHarvest board two months after it went public, on April 9, 2021, to make his Senate run. He had served since August 2020. The company told regulators his departure was “not the result of any disagreement between the Company and Mr. Vance on any matter relating to the Company’s operations, policies, or practices.”
Although Vance’s name is nowhere in the suits, a watchdog group focused on private equity and venture capital firms called his actions surrounding the company into question.
“As a venture capitalist, J.D. Vance promised to invest in Appalachia and touted AppHarvest’s stock, but then bailed before the company’s troubles came to light,” said Jim Baker, executive director of Private Equity Stakeholder Action. “Venture capital firms generally try to grow the value of companies they invest in, but AppHarvest plummeted in value shortly after going public.”
