Vancouver-based unicorn Nexii Building Solutions Inc. is having their business practice called into question once again as the company defends itself in a second lawsuit.
Just two years ago, the green building startup declared it had attained unicorn status – a private company with a valuation of US$1 billion or more – faster than any other Canadian company.
Nexii also advertises a board of directors and leadership team stacked with big names, including former Vancouver mayor Gregor Robertson, former global president and COO of McDonald’s Mike Roberts and actor Michael Keaton, an investor in the company.
As of 2022, the company’s valuation was estimated to be more than $2 billion following a $45 million raise from investors.
Two previous funding rounds in 2021 and 2020 raised $45 million and $33 million, respectively, thanks to the company’s development of “Nexitte,” a low-carbon alternative to cement and concrete for floors, walls and roofs.
Since then, the company been battling an alleged breach of contract in B.C. Supreme Court. And in the eastern district of Pennsylvania, Nexii is being sued for breach of contract, as well as fraud, tortious interference and securities fraud.
Green construction company NexUS1 LLC and investor Nex-Stock LLC, assert that Nexii made false representations to generate investment and participation in their franchise program. This allegedly resulted in significant financial losses, reputational harm and operational setbacks for the plaintiffs, according to court documents.
The suit also names Stephen Sidwell, “serial entrepreneur” and CEO of Nexii, as a defendant. Sidwell is described in court documents as the “individual bad actor principally responsible for perpetrating these frauds, doing so for his own personal monetary gain and aggrandizement.”
Closer to home, Nexii’s B.C. Supreme Court civil suit involves a subsidiary of Burnaby-based Symphony Group, Symphony Advanced Building Technologies Inc. (SABT).
SABT is suing Nexii over alleged issues between the two companies to fulfill an early-stage licensing agreement.
Symphony Group Companies’ managing director Gurdeep Kainth said that he and multiple family members have invested millions of dollars in Nexii. These investments assumed that SABT would enter into a licensing agreement with the company.
“The Kainth family was very much in support of Nexii. They wanted Nexi to succeed, thought this was a huge breakthrough in construction technology and really wanted to be a part of it, not just as investors but also hands on the ground, let’s build this stuff and build up a big business. Nexii made a number of representations in that respect and certainly that’s why this relationship was entered into that way,” said Max Krangle, vice-president of business development at SABT.
Nexii denies all claims of wrongdoing in both cases, according to a statement to Glacier Media.
“It is unfortunate that SABT and NexUS1 pursued litigation. Nexii believes their claims have no merit and continues to be confident in a just resolution. Once again, Nexii emphatically denies the allegations and will vigorously defend its case,” said the statement.
BIV previously reported that in late 2019, Nexii and SABT entered into a letter agreement – a term sheet that laid out the conditions for a licensing agreement. This was to allow SABT to be the first licensee of Nexii’s technology in Ontario.
Following a modification of the term sheet, and Nexii reportedly failing to provide the licensing agreement within a 90-day period, Nexii allegedly provided SABT with a manufacturing pact.
This allegedly led to a series of drafts, changes in terms and Nexii promising a new “side letter” to accompany the manufacturing agreement. In the end, SABT was allegedly told there would be no “side letter” and that Nexii was pursuing an agreement with a different company for Ontario production.
“To say it was devastating is a polite way of putting things. It’s bewildering to us on the management side of Nexii as to where they hope to go with their expansion. We don’t have any insight into that anymore. I mean with the millions of dollars invested in Nexii, of course nobody likes to lose money, but certainly this one felt even harder because of all the promises that were made,” said Kainth.
SABT and Nexii’s court date is set for April 2024. Minor pre-litigation applications have recently been made on both sides, according to Kainth and Krangle.
“We have invested huge amounts of money, millions of dollars, in costs that we’ve expended on bringing forward our licensing, attempts to set up our business, bringing on people and it’s caused an absolutely huge amount of disruption within our business. In fact, we don’t have a business in Symphony Advanced Building Technologies without this,” said Krangle.
While both SABT and U.S.-based plaintiffs assert that Nexii allegedly failed to deliver on a business contract, the U.S. plaintiffs go farther by questioning the validity of the “Nexitte product” and by accusing the company of Canadian tax fraud.
John Wolfington, co-owner of NexUS1 alongside Daniel Metzler, was allegedly approached by Sidwell, who pitched the investment opportunity in Nexii.
Sidwell and Nexii allegedly claimed to have a franchise-ready system for building structures using proprietary software, manufacturing methodologies and materials. Based on their representations of a $1.2 billion pipeline, two successful plants in Canada and other successfully completed projects, among other things, NexUS1 entered into a franchise agreement with Nexii.
Court documents highlight several alleged misrepresentations and deficiencies in Nexii’s claims, including issues with completed projects and Nexii’s system not being ready for franchising. The plaintiffs assert that Nexii made false representations to generate investment and participation in their franchise program.
“Defendant Nexii used [NexUS1] as a guinea pig hoping that it might be able to use [NexUS1] and its substantial capital investment to create a franchise program on the fly. It was unable to do so.”
“Unfortunately, [Nexii] is a Theranos, not a Tesla,” states the lawsuit, referencing the American corporation whose CEO has been convicted of fraud in connection to the company’s blood-testing technology.
Nexii’s sustainable cement product allegedly does not meet its “grandiose claims,” according to the U.S. lawsuit.
These documents claim that “Nexiite” panels are “far heavier” than other types of manufactured panels, that their fire and water-resistance capabilities are not based on legitimate testing and that the panels that were tested were done so under unrealistic conditions, and do match the panels Nexii would “ultimately design.”
NexUS1 also alleges that “Nexiite” cannot be manufactured and delivered at prices consistent with Nexii’s estimates. In addition, they claim that Nexii failed to provide any reliable research that proves “Nexiite” has the capabilities advertised.
According to Kainth, when SABT requested similar research to provide to investors, Nexii did not do so.
Multiple examples of issues with the product are included in the lawsuit, with one allegedly involving Starbucks (NASDAQ:SBUX) almost suing Nexii due to deficient work. To avoid a lawsuit, Nexii allegedly settled this claim and took a “massive loss on the project” despite representing the contrary to NexUS1.
In another case, Nexii constructed the building envelope of a Marriott International Inc. (NASDAQ:MAR) hotel. The project is described in court documents as being more than a year behind schedule with cost overruns of roughly $1 million.
According to filings, Nexii allegedly acknowledged some of the company’s failings and offered to pay back $10 million in direct losses. However, NexUS1 claims that this is an attempt to commit Canadian tax fraud, with Nexii allegedly insisting upon labelling the reimbursement as “research and development.”
“Even if the true purpose of these payments was research and development into manufacturing Nexii panels, this would still constitute an admission of defendant Nexii’s fraud. If defendant Nexii had a franchise-ready system … it would not need its franchisee to research the defects in its system and develop solutions,” said the court documents.
Nexii and NexUS1 are currently in settlement negotiations, according to Nexii’s statement.
“Should these discussions prove to be unproductive over the next 60 days, Nexii will proceed to dismiss all matters commenced by the unauthorized agents of NexUS1, John Wolfington and Dan Metzler. These individuals are acting outside their authority and in breach of the NexUS1 corporate charter and operating agreement,” said Nexii.
